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Problem Set 1 : Bankers Discount - Quantitative Aptitude Video Lecture | Logical Reasoning (LR) and Data Interpretation (DI) - CAT

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FAQs on Problem Set 1 : Bankers Discount - Quantitative Aptitude Video Lecture - Logical Reasoning (LR) and Data Interpretation (DI) - CAT

1. What is bankers discount?
Ans. Banker's discount is a financial concept used to calculate the true interest earned or charged on a bill of exchange or promissory note. It is the difference between the face value of the bill and the amount paid for it, considering the remaining time till maturity and the prevailing interest rates.
2. How is banker's discount calculated?
Ans. Banker's discount is calculated using the formula: Banker's Discount (BD) = Face Value (FV) - Amount Paid (AP). The amount paid is determined by subtracting the interest earned from the face value. The interest earned is calculated using the formula: Interest Earned = (FV * Rate * Time) / 100, where Rate is the interest rate and Time is the remaining time till maturity in years.
3. What is the significance of banker's discount in banking?
Ans. Banker's discount is significant in banking as it helps banks and financial institutions to determine the true value of bills of exchange and promissory notes. It allows them to accurately calculate the interest earned or charged on such instruments, enabling effective decision-making in lending and investment activities.
4. How does banker's discount differ from simple interest?
Ans. Banker's discount and simple interest differ in terms of their calculation and application. Banker's discount considers the remaining time till maturity and the prevailing interest rates, while simple interest does not. Banker's discount is used specifically for bills of exchange and promissory notes, while simple interest can be applied to various types of loans or investments.
5. Can you provide an example to understand banker's discount better?
Ans. Certainly! Let's consider a bill of exchange with a face value of $10,000, a remaining time till maturity of 3 months, and an interest rate of 8% per annum. To calculate the banker's discount, we use the formula: Banker's Discount (BD) = Face Value (FV) - Amount Paid (AP). The interest earned can be calculated using the formula: Interest Earned = (FV * Rate * Time) / 100. By substituting the given values, we find the interest earned to be $200. Therefore, the amount paid would be $9,800 ($10,000 - $200), and the banker's discount would be $200.
131 videos|171 docs|117 tests
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