Banker’s Discount

Quantitative Aptitude - Banker’s Discount

Understand the concept of Banker’s Discount (BD), True Discount (TD), and their relationship in commercial transactions involving promissory notes or bills of exchange.

1. Core Definitions

• Face Value (FV): Amount due at the end of a credit period.
• True Discount (TD): Interest on present value for the period till due date.
• Banker’s Discount (BD): Interest on face value for the same period.
• Banker’s Gain (BG): Difference between BD and TD → BG = BD - TD.

2. Key Formulas

• TD = (FV × Rate × Time) / (100 + (Rate × Time))
• BD = (FV × Rate × Time) / 100
• BG = BD - TD

3. Example

FV = ₹1000, Time = 1 year, Rate = 10%

• TD = (1000 × 10 × 1) / (100 + 10) = ₹90.91
• BD = (1000 × 10 × 1)/100 = ₹100
• BG = ₹100 - ₹90.91 = ₹9.09

4. Exam Tips

• Use appropriate formula depending on whether you're given TD or BD.
• Be cautious with units: time in years and rate annually unless specified.

5. Pitfalls

• Confusing TD and BD - remember TD is on present value, BD is on face value.

Summary: Banker’s Discount is a commercial interest concept. Distinguish it from True Discount and practice conversions between the two.