TRUE DISCOUNT

372. Discount is a deduction made for the payment of money before it is due.

373. The Present Worth of a debt due at a future time is its value now. The present worth of a debt is such a sum as, if put at interest, will amount to the debt at the expiration of the time.

374. True Discount is the difference between the present worth and the debt, and is called truc discount because the method of computing it is in strict accordance with equity.

True discount is little used owing to the difficulty in computing it, and bank discount has almost become universal.

375. The Face of the Debt is the sum which will be due at the expiration of the time.

The Present Worth is a Principal which at the rate of interest for the time will amount to the debt.

The terms Present Worth, Face of Debt and True Discount correspond to Principal, Amount and Interest.

1. What is the present worth and true discount of a debt of $354 due in 3 yrs., money being worth 6%?

From this solution and explanation we have the following:

To Find the True Discount

a. Divide the face of the debt by the amount of $1 for the given time and rate, and the result will be the present worth.

b. Subtract the present worth from the face of the debt and the difference will be the true discount.

NOTE. In the following problems the rate per cent. is 6, unless some other rate is given.

2. I owe $191.08, due in 1 yr. 6 mo. 18 days. I am allowed true discount at 8%. Find the sum that will pay the debt now.

3. What sum will pay a debt of $1098.39, due in 2 yrs. 9 mo. 21 days, money being worth 6%?

4. My note of $1035.99, due in 3 yrs. 1 mo. 6 days, was purchased by B at 9% true discount. What did he pay for the note? 5. L. B. Jones owes $1657.50, due in 5 yrs. 11 mo. 3 days. He borrowed the money to pay same, being allowed 4% true disHow much did he borrow?

count.

6. If Parker pays a debt of $151.27, due in 1 yr. 1 mo. 24 days, with corn at 35 cents per bushel, how many bushels will be required, money being worth 7%?

7. Brown gave his note for $470, and cash for remainder of a debt of $1073.50, due in 2 yrs. 2 mo. How much cash did he pay, if he was allowed 6% true discount on the debt?

8. I gave Smith a horse in payment of a debt of $193.60, due in 8 mo. 12 days. I was allowed 10% true discount on the debt, and thus gained 20% on the cost of the horse. What did the horse cost me?

9. A merchant purchased a bill of goods for $260 on 6 months' time, or $245 for cash. If money is worth 8%, will he gain or lose and how much if he pays cash?

10. A jobber paid $274 cash for a lot of merchandise, rather than give his note for $297.30 for 1 yr. 6 mo. If money was worth 7%, what did he lose by paying cash?

11. A merchant bought a bill of goods for $760 on 1 year's time, or with a trade discount of 2 and 5% for cash. He accepted the cash offer. Did he gain or lose, money being worth 63%?

12. I bought $721 worth of wheat on 4 months' time, and sold it on same day at 12% advance. I paid the present worth of the. debt from the proceeds, being allowed 9% true discount. How much did I gain by the transaction?

13. A wholesale merchant sold a bill of $1020 at a trade discount of 20 and 121%, and allowed a credit of 90 days. He accepted cash payment allowing true discount at 8%. What was the cash payment?

14. A retail merchant bought a bill of goods amounting to $360 at a trade discount of 10 and 5%. He sold the goods at 20% profit on the invoice price and allowed a credit of 6 months. What was his net gain, money being worth 10%?

15. I sold goods for $1134, and allowed 7 mo. 15 days credit. The purchaser paid me cash at true discount of 8%. I invested the proceeds in wheat at $1.20 per bushel. How many bushels did I buy?

BANK DISCOUNT

376. Bank Discount is the simple interest paid in advance on a note or draft for the time the paper has to run.

Bank Discount may be computed by either of the methods of reckoning interest, but in the case of notes discounted in banks, and call loans on Wall street banker's interest is used.

377. The Proceeds of a note or draft is the sum received from the bank for it or the face of the paper less the bank discount.

In case the paper is drawing interest, the amount due at maturity is the face of the paper and on this the discount should be computed. 378. The Term of Discount is the time from the date of discount to the maturity of the paper.

In finding the term of discount the usual custom is to exclude the day on which the paper is discounted, but include the day of maturity. Thus on a note discounted June 10, due June 25, the term of discount would be 15 days. This custom is not universal however, and banks in Baltimore, Philadelphia and few other cities, charge for the day of discount, also, making in the above example 16 days as the term of discount.

In computations in bank discount, five quantities are considered, viz. Face of Debt, Rate of Discount, Term of Discount, Bank Discount and Net Proceeds.

In the following problems, do not use grace and count exact days for term of discount.

379. To find the bank discount and proceeds of a note or debt.

1. Find the bank discount and the proceeds of a note of $240 at 6% discount, dated January 10, 1903, for 4 mo. 27 days.

From this solution and explanation we have the following:

To Find the Bank Discount

a. Find the term of discount in exact days.

b. Find the interest on the face of the note for the term of discount and this will be the bank discount.

c. Subtract the discount from the face of the note to find the net Proceeds.

NOTE.-If a note is on interest, find its amount at maturity, and taking this as the face of the note, cast the interest on it as above.

Find the bank discount of the following notes :

2. $325, dated March 4 for 2 mo. 26 days, at 5%, discounted March 18.

3. $870, dated May 1 for 27 days, at 9%, discounted May 11. 4. $465, dated April 16, for 1 mo. 12 days, at 7%, discounted April 27.

5. $1282.50, dated February 19, 1905, for 3 mo. 4 days, at 8%, discounted March 23.

6. $1848, dated January 27, 1905, for 4 mo. 2 days, at 10%, discounted at date.

Find the proceeds of the following notes:

7. $920 at 10%, dated January 10, 1905, due in 30 days, discounted January 10.

8. $465, at 9%, dated March 4, 1905, due in 60 days, discounted March 15.

9. $2725 at 5%, dated November 12, 1905, due in 90 days, discounted November 17.

10. $194.80 at 6%, dated September 4, 1905, due in 45 days, discounted September 4.

Find the date of maturity, term of discount, bank discount and proceeds of the following notes.

(11)

$280.

CHICAGO, ILL., March 12, 1905. Four months after date, I promise to pay to R. T. Owens, or order, Two Hundred Eighty Dollars. Value received.

Discounted May 20, 1905, at 7%.

F. S. Cox.