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Engineering Economy Module 3

This document discusses time value of money concepts such as future value, present value, discount rates, and interest rates. It defines discount as the difference between the future worth and present worth of a commodity. There are two types of discounts: trade discounts offered by sellers, and cash discounts offered to buyers who pay promptly. Formulas are provided to calculate future value, present value, discount rates, and the relationship between discount rates and interest rates. Sample problems demonstrate calculating simple interest rates, discount rates, and discount amounts.

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Mark Renbel Paran
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© © All Rights Reserved
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Download as DOCX, PDF, TXT or read online on Scribd
59 views

Engineering Economy Module 3

This document discusses time value of money concepts such as future value, present value, discount rates, and interest rates. It defines discount as the difference between the future worth and present worth of a commodity. There are two types of discounts: trade discounts offered by sellers, and cash discounts offered to buyers who pay promptly. Formulas are provided to calculate future value, present value, discount rates, and the relationship between discount rates and interest rates. Sample problems demonstrate calculating simple interest rates, discount rates, and discount amounts.

Uploaded by

Mark Renbel Paran
Copyright
© © All Rights Reserved
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
You are on page 1/ 2

LEARNING

OBJECTIVES
After studying this module, you should be able to DISCOUNT
compute:

– The future value of an investment Discount – is the difference between the future worth of a
made today certain commodity and its present worth.
2 Types of Discount:
– The present value of cash to be Trade Discount – discount offered by the seller to induce
received at some future date trading.
Cash Discount – is the reduction on the selling price offered
– The return on an investment to a buyer to induce him to pay promptly.
D=F−P
– The number of periods that equates Where:
D = amount of discount
a present value and a future value
F = accumulated amount or future worth
given an interest rate P = principal or present worth
Discount Rate – is the discount on one unit of principal per
• Be able to solve time value of money unit of time.
problems using: F−P
d= =1− (1+i )−1
F
– Formulas
If the commodity is discounted in a certain period of time:
Fd=F−P
TOPIC P=F ( 1−d ) For 1 year
OUTLINE P=F ( 1−nd ) For n years
The relationship between discount rate and interest rate
1. Discount becomes:
d
i=
1−d
OVERVIEW and
i
d=
1+i
Module 1 serves as a brief discussion about the Where:
basic concepts of thermodynamics and heat d = discount rate for the period involved
i = rate of interest for the same period
transfer. It gives us an overview on the forms of
energy and the laws governing it. This module is SAMPLE PROBLEMS
good for 2 hour lecture. Example 1: Mr. T borrowed money from the bank. He
receives from the bank P 1,340 and promised to pay P 1,500
ACTIVATING at the end of 9 months. Compute: (a) Simple interest rate;
and (b) Discount Rate.
PRIOR KNOWLEDGE Ans. (a) 15.92%; (b) 13.73%
Example 2: Find the discount if P 2,000 is discounted for 6
months at 8% simple discount.
Ans. P 80
Example 3: Discount 1650 for 4 months at 6% simple
interest. What is the discount?

Module 1 – Basics of Heat Transfer | Page 1 of 2


Ans. P 32.35 Prepared by:

ENGR. MARK RENBEL V. PARAN


Faculty, College of Engineering and Architecture
SUMMARY
Let us see if you can remember the main points
raised in this lesson. Below is a summary of these
points:

Discount – is the difference between the future worth of a


certain commodity and its present worth.
2 Types of Discount:
Trade Discount – discount offered by the seller to induce
trading.
Cash Discount – is the reduction on the selling price offered
to a buyer to induce him to pay promptly.
D=F−P
Where:
D = amount of discount
F = accumulated amount or future worth
P = principal or present worth
Discount Rate – is the discount on one unit of principal per
unit of time.
F−P
d= =1− (1+i )−1
F
If the commodity is discounted in a certain period of time:
Fd=F−P
P=F ( 1−d ) For 1 year
P=F ( 1−nd ) For n years
The relationship between discount rate and interest rate
becomes:
d
i=
1−d
and
i
d=
1+i
Where:
d = discount rate for the period involved
i = rate of interest for the same period

LEARNING ACTIVITY 1

REFERENCES

Module 1 – Basics of Heat Transfer | Page 2 of 2

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