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Discount and Inflation

The document discusses inflation and discount rates. It defines inflation as the increase in prices of goods and services from one year to the next, which decreases the purchasing power of money over time. It provides formulas to calculate future costs accounting for inflation and future purchasing power based on the present value, inflation rate, and number of years. The document also defines discount as the difference between the present value received and the future face value of a negotiable paper. It provides a formula to calculate the discount rate based on the future value, present value, and time period. An example calculation demonstrates determining the discount and interest rates from information about a loan discounted by a bank.

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266 views9 pages

Discount and Inflation

The document discusses inflation and discount rates. It defines inflation as the increase in prices of goods and services from one year to the next, which decreases the purchasing power of money over time. It provides formulas to calculate future costs accounting for inflation and future purchasing power based on the present value, inflation rate, and number of years. The document also defines discount as the difference between the present value received and the future face value of a negotiable paper. It provides a formula to calculate the discount rate based on the future value, present value, and time period. An example calculation demonstrates determining the discount and interest rates from information about a loan discounted by a bank.

Uploaded by

nbuenaflor215
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPTX, PDF, TXT or read online on Scribd

DISCOUNT AND

INFLATION
Nicole Syra B. Duque
Ma. Alexandra G. Mapoy
Francis Angelo L. Laguna
INFLATION
- the increase in the price for goods and services from
one year to another.
-as the result of purchasing power money decreases

FC = PC
Where: PC = present cost of commodity
FC = future cost of the same commodity
f = annual inflation rate
n = number of days
EXAMPLE
3

A certain product cost Php 1,000 . If inflation is at the rate of 8% per year,
what will be the cost of the item in 2 years?

SOLUTION:

FC = PC

PC= 1,000
f = 8% or 0.08

FC = 1,000
= 1,166.40
FOR PURCHASING 4

POWER OF MONEY
F=

Where : F = Future purchasing power of money


P = Present purchasing power of money
f = inflation rate
n =number of years
Presentation title 5

EXAMPLE
What will be the equivalent amount of Php 1,000 after 2 years, If the
inflation rate is at 8% per year?

F=
SOLUTION: F=
F =? F =
P= 1,000
f = 0.08 F = 857.34
n = 2 years
Presentation title 6

DISCOUNT
- on a negotiable paper is the difference between the presentation ( the
amount received for the paper in cash) and the worth of paper at
sometime in the future ( the face value of the paper or principal).
- Discount is interest paid in advance

DISCOUNT (d) = FUTURE VALUE – PRESENT VALUE


The rate of discount is the discount on one unit of principal for
one unit of time

(1+ i= or d=

o
Where d = rate of discount for the period involve
i = rate of the interest for the same
period
P1,000
Presentation title 7

EXAMPLE
Zenitsu borrowed P5,000 from a bank and agreed to pay the laon at the end of 9 months.
The bank discounted the laon and gave him P4,0000 in cash. (a) what was the rate of discount. (b) what
was rate of interest at the rate of interest at the same time? (c) what was the equivalent actual rate of
interest for one year based on the actual borrowed money.
P4,000
o 9 mos

P5,000
(a) We are required to determine but we can’t use our formula for we don’t have the
value for the interest. In this case, we will use discount is equal to amount of
discount over principal amount

d=

d=
Presentation title 8

(b) Interest rate


i=

i = = 0.25 or 25%

(c) Total interest paid in indvance I = P1,000 assumed for the entire year

I = Pin
i=

i = = 0.3333 or 33.33%
THANK YOU
Mirjam Nilsson​
[email protected]
www.contoso.com

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