The Mathematics of Money

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Learning Objectives

LO 1 Understand the concept of simple discount, and

recognize situations where it may be used.

LO 2 Calculate the amount of simple discount for, and

the proceeds of, a simple discount note.

LO 3 Use the simple discount formula and basic algebra

techniques to fi nd the maturity value, simple

discount rate, or term, given the other details of a

discount note.

LO 4 Compare simple interest rates to simple discount

rates and calculate the equivalent simple interest

rate for a discounted note.

LO 5 Analyze secondary sales of promissory notes and

perform calculations necessary to evaluate the

simple interest rates earned by different parties

to a given fi nancial transaction.

Chapter Outline

2.1 Simple Discount

2.2 Simple Discount vs. Simple Interest

2.3 Secondary Sales of Promissory Notes

Simple

Discount

2.1 Simple Discount

The size of a loan usually depends on the amount the borrower needs (or wants) to borrow.

That was certainly how we looked at things in Chapter 1, and it is probably the most

natural point of view in most situations.

However, there are times when a loan’s size depends more on the amount to be repaid

than on the amount to be borrowed. Consider the following few examples:

“Money is power, freedom, a cushion, the

root of all evil, the sum of blessings.”

—Carl Sandburg, “The People, Yes”

CHAPTER

2