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Module 8 Part 1

The document provides an introduction to simple discount notes, outlining key terms like face value, maturity value, bank discount, and proceeds. It defines simple discount as interest being deducted at the beginning of the loan period rather than added at the end. Examples are given for calculating bank discount and proceeds on discounted loans for short-term business borrowing from banks.

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Shyrell Palacio
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39 views

Module 8 Part 1

The document provides an introduction to simple discount notes, outlining key terms like face value, maturity value, bank discount, and proceeds. It defines simple discount as interest being deducted at the beginning of the loan period rather than added at the end. Examples are given for calculating bank discount and proceeds on discounted loans for short-term business borrowing from banks.

Uploaded by

Shyrell Palacio
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as PDF, TXT or read online on Scribd
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PACIFIC SOUTHBAY COLLEGE, INC

Purok Carmenville, Calumpang, General Santos City


COLLEGE PROGRAM
MODULE NO. 7
SY 2020-2021

Descriptive Title : Business Mathematics


Section : BSA1
Class Schedule : Monday-Friday
Room : thru Google Classroom; Class Code: qtfbojb
Instructor : MARK SHANE JOSE JUCAR
Contact Details : [email protected] / 0910 702 6194

TITLE: SIMPLE DISCOUNT NOTES Part 1

Learning Objectives: At the end of this lesson, the students should be able to:

1. Define the key terms in simple discount.


2. Differentiate simple discount with simple interest.
3. Compute the principal and proceeds of loans that are being discounted.
4. Determine the effective rate of interest on discounted loans.
5. Figure the amount of interest and the proceeds of discounted notes.

LESSON:
Introduction

 Promissory notes in which interest is added to the face value are used between businessmen, for
example, as evidence of a debt for merchandise. When a business borrows money from a bank or
some financial institutions (e.g. pawnshops), however the debt is usually discounted that is, the
interest or discount is deducted at the beginning of the loan period instead of being added at the end.
Short-term business borrowing is a common practice, and commercial banks earn a substantial part
of their income from the interest charged on this type of loan.

 A promissory note can be interest bearing or noninterest bearing. An interest bearing promissory note
is when an interest is stipulated in the agreed terms between the borrower and the lender, otherwise
it is noninterest bearing promissory note.

 If a borrower sign a noninterest-bearing promissory note for P50,000, the borrower pay back the
same amount at maturity. We can simply say that the maturity value of a noninterest bearing note is
the same as its face value. Normally, noninterest-bearing notes only covered a short period of time
with special conditions. One example is when a person borrows money from a relative in which
noninterest-bearing promissory note is agreed upon.
 For a simple discount, the face value and the maturity value are the same. The amount of interest
charged is called bank discount. The amount of money the borrowers receives is called the proceeds,
which are found by subtracting the discount from the face value of the note.

Basic Concepts

 The formula for calculating discount is similar to the interest formula. The important difference is that
the principal is the maturity value of the debt. The following variables will be in our mathematical
treatment of simple discount:

F = Maturity Value or Face ValueP = Proceeds

D = Bank Discount

D = Rate of discount

t = Time period (term)

Computing the Bank Discount

Examples:
1. A bank loan for P10,000 is discounted at 12% for 270 days. How much is the interest?
2. Emmanuel needed P20,500 for 90 days and applied to his bank for a loan. When the bank was
satisfied that the loan would be repaid as promised, it made the loan at a discount rate of 8%. How
much is deducted from P20,500?
Computing the Proceeds

Examples:
1. The WSS Bank is currently charging a 15% discount rate. Find the proceeds on a P17,800 note for 60
days.
1
2. A bank loan of P1,900 is discounted at 11 %. If the loan is due in 120 days, what are the proceeds?
2

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