12714025, 1035 PM Present Worth, Discounts, an Profi.oss Solutions - DeopSeok 1. Present Worth (or Present Value) Definition: Present Worth (PW) is the current value of a future sum of money or stream of cash flows given a specified rate of return (discount rate). Key Formula: If an amount F is due after 7 years and the annual discount rate is r, then: pw-=— (ery For simple interest scenarios (commercial discount): PW=F-D where D = discount, Concept: Money has time value — receiving money now is worth more than receiving the same amount in the future due to earning potential (interest) Example Problem: Addebt of 10,000 is due after 3 years. If the discount rate is 8% per annum, find the present worth. Solution: 10000 10000 P 10000 = ¥* Teo0a ~ 1259712 7, 938.32 2. Bills of Exchange Definition: Awritten order binding one party to pay a fixed sum to another party at a future date or on demand. It can be discounted (sold to a bank) before maturity to get immediate cash. Parties involved: © Drawer (creditor) * Drawee (debtor) Ips iichal coepseek.comialchalsl6et Set. cca4-4910-09e7-1866aeaSb7b0 11812714025, 1035 PM Present Worth, Discounts, an Profi.oss Solutions - DeopSeok * Payee (who receives payment) Discounting a bill: The holder sells the bill to a bank/financier for Present Worth before maturity. Bank deducts discount (interest for the remaining period). Example Problem: Abill of 50,000 due after 6 months is discounted at 10% p.a. Find the bank’s discount and the amount received. Solution: Time 6 months Rate = 10% = 0.10. Banker's Discount (BD) = F xr xt year. BD = 50000 x 0.10 « 5 = 2,500 Amount received = F ~ BD = 50000 - 2500= 47,500. 3. Discounting Techniques ‘Two types of discounts: 1, True Discount (TD) — Interest on present worth. Fxrx rp- tert l+rxt 2. Banker's Discount (BD) - Interest on face value. BD=F xrxt Relationship: BD ~TD = Interest on TD Also: Present Worth = F — TD. tps chat deepsoek.comialchalsi6e1S0817-cca4-4910.88c7-1886aeaSb7ba 216,12714025, 1035 PM Present Worth, Discounts, an Profi.oss Solutions - DeopSeok Example Problem: Find True Discount and Banker's Discount on 2,000 due in 9 months at 8% p.a Solution: F =2000, r=0.08, 9/12 = 0.75 years BD = 2000 «0.08 x 0.75= 120 F 2000 2000 = = 1886.79 lt+rt 1+ 0.08 x 0.75 1,06 , 7 TD = F — PW = 2000- 1886.79 = 113.21 Check: BD — TD = 120 ~ 113.21 = 6.79 Interest on TD = 113.21 x 0.08 x 0.75 ~ 6.79, matches. 4. Profit and Loss (Basics) Cost Price (CP): Price at which an article is purchased. Selling Price (SP): Price at which an article is sold. Profit or Gain: When SP > CP, Profit = SP — CP Loss: When CP > SP, Loss = CP — SP 5. Percentage of Profit and Loss Always calculated on Cost Price unless specified otherwise. Profit x cP %Profit = 100 Loss %Loss = —— x 100 Loss = 5 tps chat deepsoek.comialchalsi6e1S0817-cca4-4910.88c7-1886aeaSb7ba 612714025, 1035 PM Present Worth, Discounts, an Profi.oss Solutions - DeopSeok If given % profit and SP: SP cP = —— ‘Prof 1+ 100 If given % loss and SP: SP. cP = ‘YaLoss. 100 Example Problem: By selling an article for 990, a profit of 10% is made. Find cost price Solution: 990 990 P~Ts010 110 Profit = 990-900= 90. % Profit = x 100 = 10%, checks. Example Problem (Loss): Selling price = 720, loss = 10%. Find CP. Solution: 720 720 cp =—_ == 00 1-010 09 Loss = 800-720= 80, % Loss = = x 100 = 10%. 6. Selling Price Formulas Given CP and % profit P%: P SP = CP x(1+=) tps chat deepsoek.comialchalsi6e1S0817-cca4-4910.88c7-1886aeaSb7ba 46,12714025, 1035 PM Present Worth, Discounts, an Profi.oss Solutions - DeopSeok Given CP and % loss L%: L SP = CP x (1-—~ i 100 7. Discount in Marked Price Context Marked Price (MP) or List Price: Price printed/labeled. Selling Price: Price after discount. Discount = MP ~ SP. Discount x ‘Discount = 100 Successive discounts: If discounts di%, d2% are given, Effective price after first discount = MP x (1 — d;/100) After second discount = [MP * (1 — d\/100)] = (1 — d>/100) Single equivalent discount = 1 — (1 — dy/100)(1 — d2/100) as fraction. Example Problem: Marked price = 1200, successive discounts 20% and 10%. Find selling price and equivalent single discount. Solution: After 20% discount: 1200 x 0.80 = 960 After 10% discount: 960 x 0.90 = 864 = SP Total discount = 1200-864= 336 % discount = AS x 100 = 28% Equivalent single discount: 1 (0.8 x 0.9) = 1—0.72 = 0.28 = 28%, 8. Important Relationships in Discount Problems * When % profit and % discount are known: Use SP = MP x (1 — d/100) and SP = CP x (1+ 7/100), equate if needed. tps chat deepsoek.comialchalsi6e1S0817-cca4-4910.88c7-1886aeaSb7ba 51612714025, 1035 PM Present Worth, Discounts, an Profi.oss Solutions - DeopSeok * False weight problems: If a seller sells at cost price but uses less weight, gain% = Err (Gmeweight= Ever )x 100, Advanced Problem Integrating Concepts: A trader marks an article 50% above cost price and gives a discount of 20%. Find his profit percent. Solution: LetCP= 100, MP = 100 + 50% of 100 150 Discount = 20% of 150 = 30 sp=150-30= 120 Profit = 120-100= 20 20 =209 Profit % = 22 x 100 = 20%, 9. Summary of Key Formulas 11. Present Worth (Compound): P W a . Banker's Discount: BD = F xr t = Bere . True Discount: TD = F* . og. MP=SP . Discount %: ASP x 100 Naw p wn Selling Price: © With profit: SP = CP (1+ 5 © With loss: SP = CP (1 ~ 35) © With discount: SP = MP (1 ~ 74 tps chat deepsoek.comialchalsi6e1S0817-cca4-4910.88c7-1886aeaSb7ba 36