Lec. 4 Discount of Commercial papers Dr.

Samah Abo-EL-Hadid

Discount of Commercial papers at banks

Learning Objectives
• Compute bank fees and bank charges.
• Compute total expenses.
• Compute Net Amount.

Total expenses= discount + bank fees+ bank charges

Where
1. Discount = 𝐷 = 𝐹𝑎𝑐𝑒 𝑣𝑎𝑙𝑢𝑒 × 𝑑 × 𝑇
2. Bank fees = 𝐹𝑎𝑐𝑒 𝑣𝑎𝑙𝑢𝑒 × 𝑏𝑎𝑛𝑘 𝑓𝑒𝑒𝑠 𝑟𝑎𝑡𝑒
3. Bank charges = 𝐹𝑎𝑐𝑒 𝑣𝑎𝑙𝑢𝑒 × 𝑏𝑎𝑛𝑘 𝑐ℎ𝑎𝑟𝑔𝑒𝑠 𝑟𝑎𝑡𝑒

Net Amount = Face value -Total expenses

Where
D = Discount
Face value=the value of the commercial paper
d = discount rate
T = time of the commercial paper
EXAMPLE (1)
A commercial paper of $350 discounted at discount rate 6%, the bank fees
rate is 0.1 %, the bank charges rate is 0.05 % and the commercial paper
period is 30 days. Find: discount, bank fees, bank charges, total expenses
and net amount.
Solution
6 30
1. Discount = 𝐷 = 𝐹𝑎𝑐𝑒 𝑣𝑎𝑙𝑢𝑒 × 𝑑 × 𝑇 = 350 × × 360 = 1.75
100
0.1
2. Bank fees = 𝐹𝑎𝑐𝑒 𝑣𝑎𝑙𝑢𝑒 × 𝑏𝑎𝑛𝑘 𝑓𝑒𝑒𝑠 𝑟𝑎𝑡𝑒 = 350 × 100
= 0.35
3. Bank charges = 𝐹𝑎𝑐𝑒 𝑣𝑎𝑙𝑢𝑒 × 𝑏𝑎𝑛𝑘 𝑐ℎ𝑎𝑟𝑔𝑒𝑠 𝑟𝑎𝑡𝑒
0.5
= 350 × 100 = 0.175
4. Total expenses= discount + bank fees+ bank charges
= 1.75 + 0.35 + 0.175 = 2.275
5. Net Amount = Face value -Total expenses
= 350 – 2.275 = 347.725

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Lec. 4 Discount of Commercial papers Dr. Samah Abo-EL-Hadid

EXAMPLE (2)
A commercial paper of $4000 discounted at discount rate 4%, the bank
fees rate is 0.1 %, the bank charges rate is 0.05 % and the commercial
paper period is 90 days. Find: discount, bank fees, bank charges, total
expenses and net amount.
Solution
4 90
1. Discount = 𝐷 = 4000 × × 360 = 40
100
0.1
2. Bank fees = 4000 × 100
=4
0.05
3. Bank charges = 4000 × =2
100
4. Total expenses = 40+ 4 + 2 = 46
5. Net Amount = 4000 – 46 = 3954
EXAMPLE (3)
A commercial paper of $10000 discounted at discount rate 9%, the bank
fees rate is 0.2 %, the bank charges rate is 0.1 % and the commercial paper
period is 160 days. Find: discount, bank fees, bank charges, total
expenses and net amount.
Solution
9 160
1. Discount = 𝐷 = 10000 × × = 400
100 360
0.2
2. Bank fees = 10000 × = 20
100
0.1
3. Bank charges = 10000 × = 10
100
4. Total expenses = 400+ 20 + 10 = 430
5. Net Amount = 10000 – 430 = 9570
EXAMPLE (4)
A commercial paper of $5000 discounted at discount rate 10%, the bank
fees rate is 0.3 %, the bank charges rate is 0.1 % and the commercial paper
period is 200 days. Find: discount, bank fees, bank charges, total
expenses and net amount.
Solution
10 200
1. Discount = 𝐷 = 5000 × × 360 = 277.78
100
0.3
2. Bank fees = 5000 × = 15
100
0.1
3. Bank charges = 5000 × =5
100

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Lec. 4 Discount of Commercial papers Dr. Samah Abo-EL-Hadid

4. Total expenses = 277.78+ 15 + 5 = 297.78

5. Net Amount = 5000 – 297.78 = 4702.22
EXAMPLE (5)
A commercial paper of $8000 discounted at discount rate 14%, the bank
fees rate is 0.1 %, the bank charges rate is 0.025 % and the commercial
paper period is 111 days. Find: discount, bank fees, bank charges, total
expenses and net amount.
Solution
14 111
1. Discount = 𝐷 = 8000 × × 360 = 245.33
100
0.1
2. Bank fees = 8000 × =8
100
0.025
3. Bank charges = 8000 × =2
100
4. Total expenses = 245.33+ 8 + 2 = 255.33
5. Net Amount = 8000 – 255.33= 7744.67
EXAMPLE (6)
A commercial paper of $5800 discounted at discount rate 18%, the bank
fees rate is 2 %, the bank charges rate is 0.3 % and the commercial paper
period is 62 days. Find: discount, bank fees, bank charges, total expenses
and net amount.
Solution
18 62
1. Discount = 𝐷 = 5800 × × 360 = 179.8
100
2
2. Bank fees = 5800 × = 116
100
0.3
3. Bank charges = 5800 × = 17.4
100
4. Total expenses = 179.8+ 116 + 17.4 = 313.2
5. Net Amount = 5800 – 313.2= 5486.8
EXAMPLE (7)
A commercial paper of $12000 discounted at discount rate 15%, the bank
fees rate is 1 %, the bank charges rate is 0.3 % and the commercial paper
period is 190 days. Find: discount, bank fees, bank charges, total
expenses and net amount.
Solution
15 190
1. Discount = 𝐷 = 12000 × × = 950
100 360
1
2. Bank fees = 12000 × = 120
100

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Lec. 4 Discount of Commercial papers Dr. Samah Abo-EL-Hadid

0.3
3. Bank charges = 12000 × = 36
100
4. Total expenses = 950+ 120 + 36 = 1106
5. Net Amount = 12000 – 1106= 10894
EXAMPLE (8)
A commercial paper of $64000 discounted at discount rate 16%, the bank
fees rate is 0.2 %, the bank charges rate is 0.5 % and the commercial paper
period is 71 days. Find: discount, bank fees, bank charges, total expenses
and net amount.
Solution
16 71
1. Discount = 𝐷 = 64000 × 100
× 360 = 2019. 56
0.2
2. Bank fees = 64000 × = 128
100
0.5
3. Bank charges = 64000 × = 320
100
4. Total expenses = 2019.56+ 128 + 320 = 2467.56
5. Net Amount = 64000 – 2467.56= 61532.44
EXAMPLE (9)
A commercial paper of $25000 discounted at discount rate 15%, the bank
fees rate is 1.5 %, the bank charges rate is 0.3 % and the commercial paper
period is 60 days. Find: discount, bank fees, bank charges, total expenses
and net amount.
Solution
15 60
1. Discount = 𝐷 = 25000 × × 360 = 625
100
1.5
2. Bank fees = 25000 × = 37.5
100
0.5
3. Bank charges = 25000 × = 75
100
4. Total expenses = 625+ 37.5 + 75= 737.5
5. Net Amount = 25000– 737.5= 24262.5
EXAMPLE (10)
A commercial paper of $16000 discounted at discount rate 18%, the bank
fees rate is 2 %, the bank charges rate is 0.5 % and the commercial paper
period is 90 days. Find: discount, bank fees, bank charges, total expenses
and net amount.
Solution
18 90
1. Discount = 𝐷 = 16000 × × 360 = 720
100

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Lec. 4 Discount of Commercial papers Dr. Samah Abo-EL-Hadid

2
2. Bank fees = 16000 × = 320
100
0.5
3. Bank charges = 16000 × = 80
100
4. Total expenses = 720+ 320 + 80= 1120
5. Net Amount = 16000 – 1120= 14880