Banker’s Discount
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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.
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