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Simple Discount Interest

Here are the steps to solve this problem: a) Discount interest rate is 5% F = P / (1 - dt) F = 18,000 / (1 - 0.05(15/12)) F = 18,000 / 0.9375 F = Php19,200 b) Simple interest rate is 5% F = P(1 + rt) F = 18,000(1 + 0.05(15/12)) F = 18,000(1.125) F = Php19,125 So with a discount interest rate of 5%, the amount due at the end of 15 months is Php19,200. With

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1K views

Simple Discount Interest

Here are the steps to solve this problem: a) Discount interest rate is 5% F = P / (1 - dt) F = 18,000 / (1 - 0.05(15/12)) F = 18,000 / 0.9375 F = Php19,200 b) Simple interest rate is 5% F = P(1 + rt) F = 18,000(1 + 0.05(15/12)) F = 18,000(1.125) F = Php19,125 So with a discount interest rate of 5%, the amount due at the end of 15 months is Php19,200. With

Uploaded by

Vivian
Copyright
© © All Rights Reserved
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
You are on page 1/ 16

SIMPLE

DISCOUNT
INTEREST
1
Objective:
Today you are expected to learn :
 The basic concept on simple
discount interest
 how to compute for discount rate,
term, amount of the loan, and
proceeds

2
DISCOUNT INTEREST
- Discount interest is an amount paid for
borrowing money.
- is charged at the time the loan that has been
negotiated is executed.

Example:
I sign today a loan for one year with a maturity
value of P100, 000 and receives P90, 000
today as its principal or its proceeds. P10,000
is referred to as the discount interest.

3
DISCOUNT INTEREST (Id)
Discount interest depends on three factors:
1.) F = maturity value of the loan, which
is the amount of the loan applied for on
the origin date
2.) d = the discount interest rate, expressed
in percent and to be computed on F
3.) t = the term of the loan

Id = F d t

4
DISCOUNT INTEREST (Id)
Proceeds – is the amount received by the
borrower on the origin date (principal)
- is the amount received by the
borrower after removing the interest on
the loan.
- is the difference between maturity
value and discount interest.
P = F – Id
= F – Fdt
= F (1 – dt)
5
Connect it algebraically…
From Id=Fdt, we can derive the following
formulas:
I Fdt Id
For F: I d  Fdt d
 F
dt dt dt

For t: I d  Fdt I d Fdt Id


 t
Fd Fd Fd
For d: I d  Fdt I d Fdt
 Id
Ft Ft d
Ft
P  Proceeds
For P: Since F  I d is the amount received by the borrower
after removing the interest on the loan, then we will
 F  Fdt  F (1  dt)
have P =F - Id 6
DISCOUNT INTEREST (Id)
Example: Basty borrowed P150,000 from Bank
Karote for a term of one year. The interest
charged is 10% simple discount rate. Find the
proceeds of the loan.
Given: F=P150,000
d=10%=0.10
t=1
P=?
Which of the following formulas will we use?
Id Id Id
F t d P  F  Id
dt Fd Ft  F (1  dt)
7
DISCOUNT INTEREST (Id)
Example: Basty borrowed P150,000 from Bank
Karote for a term of one year. The interest
charged is 10% simple discount rate. Find the
proceeds of the loan.
Given: F=P150,000 d=10%=0.10 t=1
P=?
Formula: P  F (1  dt)
Solution: P  150,000(1  (0.10)(1))
 150,000(0.9)
 P135,000
Therefore, Basty will receive P135,000 as proceeds of his loan.
Professor: Em Gargoles/egg 8
DISCOUNT INTEREST (Id)
Example: How much should Badong borrow to
have P15,000 today if he promised to pay it in
2 years at 6 3/7 % simple discount rate?
Given: P=P15,000
d=6 3/7%=0.064285714
t=2
F=?
Which of the following formulas will we use?

Id Id P Id
F t F d  P  F  Id
dt Fd 1  Ft
dt  F (1  dt)
9
DISCOUNT INTEREST (Id)
Example: How much should Badong borrow to
have P15,000 today if he promised to pay it in
2 years at 6 3/7 % simple discount rate?
Given: P=P15,000 d=0.064285714 t=2
F=?
Formula: F  P
1  dt
15,000
Solution: F 
(1  (0.064285714 )(2))
 P17,213.11
Therefore,Badong needs to borrow P17,213.11
10
DISCOUNT INTEREST (Id)
Example: How long should P75,000 be discounted
to have a proceeds of P50,000 at 12.6% simple
discount rate?
Given: F=P75,000
P=P50,000
d=12.6%=0.126
t=?
Which of the following formulas will we use?

Id Id Id
F t d P  F  Id
dt Fd Ft  F (1  dt)
11
DISCOUNT INTEREST (Id)
Example: How long should P75,000 be discounted
to have a proceeds of P50,000 at 12.6% simple
discount rate?
Given: F=P75,000 P=P50,000 d=0.126
t=?
Id F  P
Formula: t  
Fd Fd
(75,000  50,000 ) 25,000
Solution: t  
75,000(0.126) 75,000(0.126)
 2.65
Therefore,it would take 2.65 years to discount P75,000.
12
DISCOUNT INTEREST (Id)
Example: Determine the discount rate if P32,000
is the proceeds of a loan of P43,000 due in 16
months.
Given: P=P32,000
F=P43,000
t=16/12
d=?
Which of the following formulas will we use?

Id Id Id
F t d P  F  Id
dt Fd Ft  F (1  dt)
13
DISCOUNT INTEREST (Id)
Example: Determine the discount rate if P32,000
is the proceeds of a loan of P43,000 due in 16
months.
Given: P=P32,000 F=P43,000 t=16/12
d=?
Id F  P
Formula: d  
Ft Ft
( 43,000  32 ,000 ) 11 ,000
Solution: d  
43,000(16 / 12) 43,000(4 / 3)
 0.1919 x100  19.19%
Therefore, the simple discount rate is about 19.19%.
14
TRY THIS!
1.) The proceeds of a 2-year loan Martha obtained at
a bank were P2, 250. If the discount interest rate
was 12 ½ %, how much is the maturity value of
the loan?
F = P3,000
2.) How much should Dwain borrow to have
P15,000 today if he promised to pay it in 2 years
at d=6 & 3/7%?
F= P17, 213.11

15
TRY THIS (1/4 SHEET OF Y.PAD)
Find the amount due at the end of 15 months if
the present value is Php18,000 and if
a) the discount interest rate is 5%
b) the simple interest rate is 5%

P F  P(1 rt)
F
1  dt
18,000 
 18,000 1 (.05)15
12 

1  (.05)15
12    Php19,125
F  Php19,200

1.2  Discount Interest


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