2. SIMPLE DISCOUNT
Is also known as bank discount
Bank discount that the bank deducts from a loan in advance
The process of finding the present value of a given amount that is due on a future date and
includes a simple interest.
In other words, to discount an amount by the simple interest is to find its present value
3. Discount – The interest deducted from the amount of a loan
Proceeds – The amount of money that we received as a loan. The value of a loan less the
discount
Future Value – Total amount that we repay. Also called “Face Value”
D = Mdt Proceeds = M – D
= M – Mdt
= M(1 – dt)
D – Simple discount
M – amount of loan (at maturity), face value, future value
d – simple discount rate per year
t – discount period in years
4. Example 1.
Ivan Lacsama borrowed P 50,000.00 from ASA Community Bank to upgrade the bathroom in his
house. Find the proceeds if the loan is the simple interest rate is 10% and the discount rate is 8% for 2
years.
Given: P – P 50,000.00 r – 10% = 0.1 d = 8% = 0.08 t = 2 years
Solution:
Is = Prt M = P + Is D = Mdt
= P 50,000.00(.1)(2) = P 50,000.00 + P 10,000.00 = P 60,000.00(.08)(2)
= P 10,000.00 = P 60,000.00 = P 9,600.00
Proceeds = M – D = P 60,000.00 – P 9,600.00 = P 50,400.00
5. Example 2
On April 1, Yolanda borrowed P2,000 from First Community Bank to upgrade the bathroom in
her house. The note matured on August 1 of the same year, and the simple interest rate was
8.5%. The note was sold to Regions Bank on June 1, at a simple discount rate of 8%. How much
did Regions Bank pay for the note?
Solution: The term of the loan 122 days
Is = PRT I = P2,000.00 x 8.5% x 122/365 = P 56.82
Maturity Value = P2,000.00 + P56.82 = $2,056.82
D = MdT = P 2,056.82 x 8% x 61/365 = P27.50
Proceeds = P 2,056.82 – P 27.50 = P 2,029.32
6. ACTIVITY 6
Solve the following:
1. Richard Torres borrowed P 75,000.00 from ASA Community Bank to upgrade the bathroom in his house. Find
the proceeds if the loan is the simple interest rate is 8% and the discount rate is 5% for 2 years.
2. Simon loaned Julie P 500.00 for 100 days at a simple interest rate of 7%. However, 40 days later, he sold the
note to Arvie using a simple discount rate of 8%. Calculate the simple interest rate that Simon actually
earned.
3. Rosemary loaned Grace P 15,000.00 for 2 years at 6.5% simple interest. One year later, Rosemary sold the
note to Stephen at a simple discount rate of 6.5%. How much did Stephen pay for the note?
4. Elma borrowed from ABC Finance Company which charged bank discount of 12%. If the proceeds received is
P 25,000.00 for the period of 215 days, Find the value of the discount charded.
