DISCOUNT AND

INFLATION
Nicole Syra B. Duque
Ma. Alexandra G. Mapoy
Francis Angelo L. Laguna
 INFLATION
- the increase in the price for goods and services from
one year to another.
-as the result of purchasing power money decreases

FC = PC
Where: PC = present cost of commodity
FC = future cost of the same commodity
f = annual inflation rate
n = number of days
 EXAMPLE
3

A certain product cost Php 1,000 . If inflation is at the rate of 8% per year,
what will be the cost of the item in 2 years?

SOLUTION:

FC = PC

PC= 1,000
f = 8% or 0.08

FC = 1,000
= 1,166.40
FOR PURCHASING 4

POWER OF MONEY
F=

Where : F = Future purchasing power of money

P = Present purchasing power of money
f = inflation rate
n =number of years
 Presentation title 5

EXAMPLE
What will be the equivalent amount of Php 1,000 after 2 years, If the
inflation rate is at 8% per year?

F=
SOLUTION: F=
F =? F =
P= 1,000
f = 0.08 F = 857.34
n = 2 years
Presentation title 6

DISCOUNT
- on a negotiable paper is the difference between the presentation ( the
amount received for the paper in cash) and the worth of paper at
sometime in the future ( the face value of the paper or principal).
- Discount is interest paid in advance

DISCOUNT (d) = FUTURE VALUE – PRESENT VALUE

The rate of discount is the discount on one unit of principal for
one unit of time

(1+ i= or d=

o
Where d = rate of discount for the period involve
i = rate of the interest for the same
period
P1,000
Presentation title 7

EXAMPLE
Zenitsu borrowed P5,000 from a bank and agreed to pay the laon at the end of 9 months.
The bank discounted the laon and gave him P4,0000 in cash. (a) what was the rate of discount. (b) what
was rate of interest at the rate of interest at the same time? (c) what was the equivalent actual rate of
interest for one year based on the actual borrowed money.
P4,000
o 9 mos

P5,000
(a) We are required to determine but we can’t use our formula for we don’t have the
value for the interest. In this case, we will use discount is equal to amount of
discount over principal amount

d=

d=
Presentation title 8

(b) Interest rate

i=

i = = 0.25 or 25%

(c) Total interest paid in indvance I = P1,000 assumed for the entire year

I = Pin
i=

i = = 0.3333 or 33.33%
THANK YOU
Mirjam Nilsson​
mirjam@contoso.com
www.contoso.com