True Discount - Important Formulas | Aptitude

IMPORTANT CONCEPTS

Suppose a man has to pay Rs. 156 after 4 years and the rate of interest is 14% per annum. Clearly, Rs. 100 at 14% will amount to R. 156 in 4 years. So, the payment of Rs. now will clear off the debt of Rs. 156 due 4 years hence. We say that:

Sum due = Rs. 156 due 4 years hence;

Present Worth (P.W.) = Rs. 100;

True Discount (T.D.) = Rs. (156 - 100) = Rs. 56 = (Sum due) - (P.W.)

We define: T.D. = Interest on P.W.;     Amount = (P.W.) + (T.D.)

Interest is reckoned on P.W. and true discount is reckoned on the amount.

IMPORTANT FORMULAE

Let rate = R% per annum and Time = T years. Then,

1.   P.W. =	100 x Amount	=	100 x T.D.
	100 + (R x T)		R x T

2.   T.D. =	(P.W.) x R x T	=	Amount x R x T
	100		100 + (R x T)

3.   Sum =	(S.I.) x (T.D.)
	(S.I.) - (T.D.)

4.   (S.I.) - (T.D.) = S.I. on T.D.

5.   When the sum is put at compound interest, then P.W. =	Amount
	1 + R T 100