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Discounting is a financial mechanism in which a debtor obtains the right to delay payments to a creditor, for a defined period of time, in exchange for a charge or fee. Essentially, the party that owes money in the present purchases the right to delay the payment until some future date. The discount, or charge, is the difference between the original amount owed in the present and the amount that has to be paid in the future to settle the debt.
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- Assume that a merchant A purchases goods worth, say Rs.1000 from another merchant B at a credit of say 4 months.
- Then B prepares a bill called bill of exchange (also called Hundi). On receipts of goods, A gives an agreement by signing on the bill allowing B to withdraw the money from A’s bank exactly after 4 months of the date of the bill.
- The date exactly after 4 months is known as nominally due date. Three more days (called grace days) are added to this date to get a date known as legally due date.
- The amount given on the bill is called the Face Value (F) which is Rs.1000 in this case.
- Assume that B needs this money before the legally due date. He can approach a banker or broker who pays him the money against the bill, but somewhat less than the face value.
- The banker deducts the simple interest on the face value for the unexpired time. This deduction is known as Bankers Discount (BD). In another words, Bank Discount (BD) is the simple interest on the face value for the period from the date on which the bill was discounted and the legally due date.
- The present value is the amount which, if placed at a particular rate for a specified period will amount to that sum of money at the end of the specified period. The interest on the present value is called the True Discount (TD). If the banker deducts the true discount on the face value for the unexpired time, he will not gain anything.
- Banker’s Gain (BG) is the difference between banker’s discount and the true discount for the unexpired time.
Note: When the date of bill is not given, grace days are not to be added.
- Important Formulas – Banker’s Discount
Let F = Face Value of the Bill, TD = True Discount, BD = Bankers Discount, BG = Banker’s Gain, R = Rate of Interest, PW = True Present Worth and T = Time in Years
- BD = Simple Interest on the face value of the bill for unexpired time = FTR/100
- PW = F/[1+T(R100)]
- TD = Simple Interest on the present value for unexpired time
= PW × TR 100 = FTR 100 + TR - TD = (
BD × 100 100 + TR - PW = F – TD
- F = (
BD × TD BD – TD - BG = BD – TD = Simple Interest on TD =
( TD ) 2 PW - TD =
PW × BG - TD = (
BG × 100 TR
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Question 1 of 20
1. Question
The banker’s discount on a bill due 4 months hence at 15% is Rs. 420. The true discount is:
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Question 2 of 20
2. Question
The banker’s discount on Rs. 1600 at 15% per annum is the same as true discount on Rs. 1680 for the same time and at the same rate. The time is:
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Question 3 of 20
3. Question
The banker’s gain of a certain sum due 2 years hence at 10% per annum is Rs. 24. The present worth is:
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Question 4 of 20
4. Question
The banker’s discount on a sum of money for 1(1/2) years is Rs. 558 and the true discount on the same sum for 2 years is Rs. 600. The rate percent is:
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Question 5 of 20
5. Question
The banker’s gain on a sum due 3 years hence at 12% per annum is Rs. 270. The banker’s discount is:
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Question 6 of 20
6. Question
If the true discount on a certain sum due 6 months hence at 15% is Rs. 120, what is the banker’s discount on the same sum for the same time and at the same rate?
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Question 7 of 20
7. Question
The present worth of a bill due sometime hence is Rs. 1100 and the true discount on the bill is Rs. 110. Find the banker’s discount and the banker’s gain.
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Question 8 of 20
8. Question
The banker’s discount of a certain sum of money is Rs. 72 and the true discount on the same sum for the same time is Rs. 60. The sum due is:
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Question 9 of 20
9. Question
The banker’s discount on Rs. 1600 at 15% per annum is the same as true discount on Rs. 1680 for the same time and at the same rate. The time is :
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Question 10 of 20
10. Question
The present wort of a sum due sometime hence is Rs. 576 and the banker’s gain is Rs. 16. The true discount is :a
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Question 11 of 20
11. Question
The banker’s gain on a certain sum due 1½ years hence is 3/25 of the banker’s discount. The rate percent is :
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Question 12 of 20
12. Question
The present worth of a certain bill due sometime hence is Rs. 800 and the true discount is Rs. 36. The banker’s discount is :
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Question 13 of 20
13. Question
The Banker’s gain on a bill due 1 year hence at 12% per annum is Rs. 6. The true discount is:
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Question 14 of 20
14. Question
The present worth of a certain sum due sometime hence is Rs. 1600 and the true discount is Rs. 160. Then banker’s gain is:
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Question 15 of 20
15. Question
The banker’s gain on a sum due 3 years hence at 12% per annum is Rs. 270. Then banker’s discount is :
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Question 16 of 20
16. Question
A man purchased a cow for Rs. 3000 and sold it the same day for Rs. 3600, allowing the buyer a credit of 2 years. If the rate of interest be 10% per annum, then the man has a gain of:
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Question 17 of 20
17. Question
The true discount on Rs. 2562 due 4 months hence is Rs. 122. The rate percent is:
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Question 18 of 20
18. Question
A trader owes a merchant Rs. 10,028 due 1 year hence. The trader wants to settle the account after 3 months. If the rate of interest 12% per annum, how much cash should he pay?
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Question 19 of 20
19. Question
A man wants to sell his scooter. There are two offers, one at Rs. 12,000 cash and the other a credit of Rs. 12,880 to be paid after 8 months, money being at 18% per annum. Which is the better offer?
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Question 20 of 20
20. Question
If Rs. 10 be allowed as true discount on a bill of Rs. 110 due at the end of a certain time, then the discount allowed on the same sum due at the end of double the time is:
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