RGhinampas-M111-module 2

M111: MATHEMATICS OF INVESTMENT MODULE 1
UNIT 2
SIMPLE DISCOUNT
Learning Objectives
1. Determine the main elements of simple discount.
2. Derive the formulas in finding the maturity value (MV) and
the discount rate (DR) and term of the loan.
3. Compute the simple discount, discount rate and the term of
the loan and discounting of promissory notes.
Introduction
This unit covers simple discount and its elements, maturity
value and promissory notes.
On Simple Discount
Definition 2.1 Simple discount (D) is the difference between the
future value and its present value and is computed only once
during the entire period of borrowing. The formula for simple
discount is given by,
D=Mrt
Where, D = simple discount
M = maturity value
r = discount rate
t = discount time
From the formula for simple discount, we can derive on how to

compute the MV, DR and discount time (DT). That is,
D
M=
rt
D
r=
Mt
D
t=
Mr
RENARIO G. HINAMPAS, JR 1
Example 2.2. Renzo borrowed P30,000 at 11.5% DR which is payable

after 3 years and 4 months. Compute the D.
Solutions:
The maturity value is P30,000.
The discount rate is 11.5%.
The discount time is 3 years and 4 months.
We are required to compute the D. Hence, substituting these
values to the formula, we have
D=Mrt
4
D=P 30,000 ( 0.115 ) 3 ( )
12
D=P 11,500
This means that on the date he borrowed, he will receive P18,500

(P30,000-P11,500) which refers to the present value and on the
maturity date, he will pay the MV of P30,000.
Example 2.3. Compute the MV of P6,000 discount interest for 10

months at 9.1% DR.
Solutions:
The D is P6,000.
The DR is 9.1%.
The DT is 10 months.
We are required to compute the MV. Hence, from the formula,
D
M=
rt
P 6,000
M=
10
( 0.091)( )
12
M =P 79,120.88
Example 2.4. The discount interest for P70,000 is P1,500 and is

discounted for 100 days. Compute the DR.
Solutions:
The D is P1,500.
The future value or MV is P70,000.
The DT is 100 days.
We are required to compute the DR. So, by substituting these
values to the formula, we have
D
r=
Mt
P 1,500
r=
100
P 70,000( )
360
r =0.077∨7.7 %
Example 2.4. Determine the DT for P200,000 at 6.3% DR with the D

of P20,000.
Solutions:
The MV is P200,000.
The D is P20,000.
The DR is 6.3%.
We are required to compute for the DT. So, substituting the given
values to the formula,
D
t=
Mr
P 20,000
t=
P200,000(0.063)
t=1.59 years
Definition 2.5. Bank discount is the interest deducted by the

bank in advance. It is computed using the formula,
Bank discount (BD) = MV × DR × time.
Definition 2.6. Proceeds is the amount received by the borrower

after the maturity value is deducted by the bank discount. That
is,
Proceeds = MV – BD.
From these formulas, we can derive a new formula for proceeds by

substitution.
Proceeds = MV – BD
Proceeds = MV – MV × DR × time
Proceeds = MV(1 – DR × time)
Example 2.7. Jr. borrowed P40,000 from a bank at 5.1% DR for 2

years and 3 months. How much amount did he received from the
bank?
Solutions:
To solve such problem, we need to compute first the BD and then

after we compute the proceeds which refers to the amount received
by Jr.
Now,
The MV is P40,000.
The DR is 5.1%.
The time is 2 years and 3 months.
Substitute these values from the formula,
Proceeds = MV(1 – DR × time)
3
Proceeds = P40,0000(1-0.051×2 )
12
Proceeds = P35,410.
Hence, Jr. received an amount of P35,410.
On Computing the Maturity Value to be Discounted

From the formula,
Proceeds = MV(1 – DR × time),
we can derive by manipulating the equation to,

Proceeds
MV =
1−DR × time
Example 2.8. Jc needs P100,000 to open a business. How much

should he loan if the bank will be charging 5.3% discount rate
for 3 years and 6 months.
Solutions:
The proceeds is P100,000.

The DR is 5.3%
The time is 3years and 6 months.
We are to compute the MV. By substituting these values to the
formulas, we have
Proceeds
MV =
1−DR × time
P 100,000
MV =
6
1−0.053 ×3
12
MV =P122,774.71
Hence, Jc needs to borrow P 122,774.71, to receive an amount of

P100,000 needed to open his business.
Definition 2.9. Promissory note is a written promise signed by

the maker to pay another person a certain sum of money in a fixed
or determinable future time. It can be a simple interest
promissory note or discounted interest promissory note. It can
also be an interest-bearing note or a non-interest bearing note.
Example 2.10. An example of a simple interest promissory note.
P120,000 Tagbilaran City June

1,2020
Sixty days after date, I promise to pay to the order of

Renario G. Hinampas, Jr. One Hundred Twenty Thousand Pesos for
value received with 8.5% simple interest per annum.
Due: July 31,2020 (Signed) Jocecar Lomarda
Parts of the Promissory Note
1. Maker is the person who signs and executes the note because
of borrowing. In this example, Jocecar Lomarda is the maker.
2. Payee is the person who extends credit or lends money.
Renario G. Hinampas, Jr is the payee.
3. Face value of the note is the amount borrowed or the
principal. In this note, P120,000 is the principal.
4. Date of the Note is the date of the note made or signed. In
the example, June 1,2020 is the date of the issuance of the
note.
5. Maturity date is the due date of the note. In the example
note, July 31,2020 is the maturity date.
6. Term of the note is the length of time covered by the note.
In the example note, it is 60 days from June 1,2020 to July
31,2020.
We note that if the given example is a discounted promissory
note, the P120,000 is the maturity value (MV) of the loan.
Hence, the borrower will receive proceeds less than the face
value of the note.
Example 2.10. An example of a non-interest bearing promissory

note.
P500,000 Tagbilaran City July

1,2020
Sixty days after date, I promise to pay to the order of

Renario G. Hinampas, Jr. five Hundred Thousand Pesos for value
received.
Due: July 31,2020 (Signed) Jocecar Lomarda
How to discount an interest-bearing promissory note?
Definition 2.11 Discounting of a promissory note refers to the

selling of the note before its maturity date. This means that the
payee sells the note to the bank and receives the proceeds at a
discount. On the due date, the bank receives the MV of the note,
that is, the principal plus the interest.
Procedures in discounting a promissory note

1. Determine the MV of the note using the formula
MV =Principal [ 1+ ( rate ×time ) ]
2. Determine the discount period. Discount period is the

remaining period from the date of discounting up to the
maturity date. In counting the remaining number of days or
discount period, always remember to exclude the first day
but include the last day.
3. Determine the discount using the formula
Discount =MV × DR × discount period
4. Determine the proceeds using the formula
Proceeds=MV −Discount
Example 2.12 On June 15,2020, JRs Company received P150,000, 60-

day, 8.5% simple interest-bearing note from its customer. The
company discounted the note on June 30,2020 at Bohol bank at 9.2%
DR. Determine the proceeds of the discounting.
Solutions:
We compute first the MV

MV =Principal [ 1+ ( rate ×time ) ]
MV =P150,000 ¿]
MV =P152,125
Next, we compute the discount period.
Maturity date of the note is August 14,2020

(60 days from June 15, 2020) 60 days
Minus expired period
(from June 15,2020 to June 30,2020) 15 days
Discount Period 45 days
So,
Bank Discount = MV × DR × time.

45
Discount = P152,125×0.092×
360
Discount = P1749.44
Finally, we compute the proceeds.
Proceeds = MV – BD.
Proceeds = P152,125-P1,749.44
Proceeds = P150,375.56
So, on June 30,2020, JRs company received P150,375.56 and on

August 14,2020, Bohol bank received P152,125.
Discounting a Non-interest Bearing Promissory Note

In this promissory note, the MV is equal to the principal. So, we
compute directly the discount and the proceeds.
Example 2.13. Mary borrowed P25,000 from Jane for a period of 10

months and issued a non-interest bearing note. After 3 months,
Jane sold the note to Coop Bank at 9.8%. Compute the proceeds.
Solutions:
Bank discount = MV × DR × time.

7
Discount = P25,000×0.098×
12
Discount = P1,429.17
Finally, we compute the proceeds.
Proceeds = MV – Bank discount.

Proceeds = P25,000-P1,429.17
Proceeds = P23,570.83
So, in this case, Jane received P23,570.83 on the discount date

and the Coop bank received P25,000 on the due date.
For your scored activity, answer the Assessment Task 2.
References:
1. Aduana, N. L. (2012). Mathematics of Investment Procedural

Approach. Quezon City: C& E Publishing, Inc.
2. Bautista, L.SM., De Lara, C. G.,Gorospe, N.
B.,Hilario,C.R.,Naval, V.C. (2012). Mathematics of
Investment 3rd Edition. Quezon City: C& E Publishing,
Inc.
3. Caras, M.S.,Gumboc, I.R., Rafael, J.C., Santos, A. SM.,
Villarosa, C.G.,Agcaolli, Z.A. (2011). Mathematics of
Investment Third Edition. Manila: Booklore Publishing
Corporation
4. Nocon, F.P, Nocon, P.P (1999). Simplified Mathematics of
Investment(Calculator-Based with Applications). Makati
City: Grandwater Publications and Research Corporation
Internet Sources:
Simple Interest Formula - MathHelp.com – Math Help

https://www.youtube.com/watch?v=6AZijeJDmgY
Intro to simple interest.

https://www.khanacademy.org/math/in-in-class-7th-math-
cbse/x939d838e80cf9307:comparingquantities/x939d838e80cf9307
:simple-interest/v/intro-to-simple-interest-comparing-
quantities-

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M111: MATHEMATICS OF INVESTMENT MODULE 1

From the formula for simple discount, we can derive on how to

Example 2.2. Renzo borrowed P30,000 at 11.5% DR which is payable

This means that on the date he borrowed, he will receive P18,500

Example 2.3. Compute the MV of P6,000 discount interest for 10

Example 2.4. The discount interest for P70,000 is P1,500 and is

Example 2.4. Determine the DT for P200,000 at 6.3% DR with the D

Definition 2.5. Bank discount is the interest deducted by the

Bank discount (BD) = MV × DR × time.

Definition 2.6. Proceeds is the amount received by the borrower

From these formulas, we can derive a new formula for proceeds by

Example 2.7. Jr. borrowed P40,000 from a bank at 5.1% DR for 2

To solve such problem, we need to compute first the BD and then

Hence, Jr. received an amount of P35,410.

On Computing the Maturity Value to be Discounted

Proceeds = MV(1 – DR × time),

we can derive by manipulating the equation to,

Example 2.8. Jc needs P100,000 to open a business. How much

The proceeds is P100,000.

Hence, Jc needs to borrow P 122,774.71, to receive an amount of

Definition 2.9. Promissory note is a written promise signed by

Example 2.10. An example of a simple interest promissory note.

P120,000 Tagbilaran City June

Sixty days after date, I promise to pay to the order of

Due: July 31,2020 (Signed) Jocecar Lomarda

Parts of the Promissory Note

Example 2.10. An example of a non-interest bearing promissory

P500,000 Tagbilaran City July

Sixty days after date, I promise to pay to the order of

Due: July 31,2020 (Signed) Jocecar Lomarda

How to discount an interest-bearing promissory note?

Definition 2.11 Discounting of a promissory note refers to the

Procedures in discounting a promissory note

MV =Principal [ 1+ ( rate ×time ) ]

2. Determine the discount period. Discount period is the

3. Determine the discount using the formula

Discount =MV × DR × discount period

4. Determine the proceeds using the formula

Example 2.12 On June 15,2020, JRs Company received P150,000, 60-

We compute first the MV

Next, we compute the discount period.

Maturity date of the note is August 14,2020

Discount Period 45 days

Bank Discount = MV × DR × time.

Finally, we compute the proceeds.

So, on June 30,2020, JRs company received P150,375.56 and on

Discounting a Non-interest Bearing Promissory Note

Example 2.13. Mary borrowed P25,000 from Jane for a period of 10

Bank discount = MV × DR × time.

Finally, we compute the proceeds.

Proceeds = MV – Bank discount.

So, in this case, Jane received P23,570.83 on the discount date

For your scored activity, answer the Assessment Task 2.

1. Aduana, N. L. (2012). Mathematics of Investment Procedural

Simple Interest Formula - MathHelp.com – Math Help

Intro to simple interest.

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