True Discount Shortcut, Formulas and Tutorials

True Discount Questions - Page 3
True Discount Video Lecture - Page 4

Suppose a man buys a pen at a credit of one year for Rs.105 at 5% simple interest. If the money is to be paid immediately, he shall give Rs.100. Rs.100 is present worth of the Rs.105 due 1 year hence. The sum due (rs.105) is called the amount and the reduction made in consideration of making the immediate payment is called true discount.

Present Value: The present value or present worth of a sum of money due at the end of a given time at the given rate will amount to the due.

True Discount: The true discount is the difference between the sum due at the end of a given time and its present worth.
Thus, true discount = amount – present worth.
In the above case the true discount = Rs.(105 – 100) = Rs.5

Note:

  • Clearly True Discount is the interest on the present worth (PW) and
    Amount (A) = Present Worth (PW) + True Discount (TD)
  • Interest is reckoned on the Present Worth (PW) and the True Discount (TD) is reckoned on amount.

 

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