Website design By BotEap.compaper discount

Website design By BotEap.comI am repeatedly asked how to discount paper. Many people think of it as some magical system used to discount a note or mortgage at a specified yield, but it’s actually quite simple if you have the right tools. Below I will show you step by step how to discount a bill using either the HP-12C or the Texas Instruments Business Analyst II Plus or BA II Plus.

Website design By BotEap.comGenerally speaking, you should start by putting the terms of the existing loan into your calculator. For this example we will use a loan or note with an opening balance of $100,000, payable monthly at 6% interest, and fully amortized over 30 years. Once this is in our calculator, we solve for payment. Now suppose we want to discount this loan to get a 10% return. Since the loan already exists, we cannot change the terms of the loan, but we can change what we would pay for this loan to achieve our 10% yield. With the above information already in our financial calculator, we change the interest rate to 10% and solve for PV or present value.

Website design By BotEap.comUsing the BA II Plus the keystrokes would be the following:

Website design By BotEap.com1. Clear the financial records with the second beige key and then press the beige CLR TVM key. I usually repeat this process by pressing the second key and pressing CLR WORK as well and some even add the second key followed by the RESET key.

Website design By BotEap.com2. Next, enter the terms of the previous existing loan: 6 I/Y, 100,000 PV, 360 N and resolve the payment by pressing the CPT key followed by the PMT key. The calculator should read -599.55. The number is negative because the calculator tells us that it is an OUT payment as opposed to an incoming payment which would be positive.

Website design By BotEap.com3. Next, we enter our new 10% yield into the calculator by entering 10 into the calculator and then pressing I/Y to set the new annual interest to 10%.

Website design By BotEap.com4. Next, we press CPT and PV to calculate the new current value and we get 68,319.27. This means that if you needed a 10% return on the funds invested in the note described above, you would pay $68,319.27 for it. The difference between the $100,000 and the $68,319.27 is $31,680.73, which is the amount of the discount. This is a discount of about 32% ($31,680.73 divided by $100,000.00 = 0.3168 or rounded to 0.32 or 32%).

Website design By BotEap.comNow if the note above had been seasoned for 3 years or 36 months, when we were changing the interest or I/Y from 6 to 10, we would also change the N from 360 to 324 which is 360 – 36. So we would solve for PV as we did above and get $67,056.46 as our discounted price.

Website design By BotEap.comIf you’re working with interest-only payments, enter the N as 99999. Working with balloon payments is a bit trickier, so contact us and we’ll discount that as a free service.

Website design By BotEap.comData entry on the 12C is a bit different than the BA II Plus. To multiply 3 by 6 in the BA II, you would enter the numbers just as you would say them; 3, X, 6, = and you would get 18. In the 12C you would enter 3, enter key, 6 and then X for times and you would get your answer of 18.

Website design By BotEap.comTo run the same discount on the 12C, we would re-enter the terms of the note or loan as it currently exists. We would delete it by pressing the beige f key and then the CLX to delete the financial records.

Website design By BotEap.comThen go as follows:

Website design By BotEap.com1. 100000, PV, 360 N, 6 blue keys g I, PMT and we would get the same payout as above of -599.55. Again, negative numbers are sums going out and positive numbers are sums going in.

2. Then enter the new interest rate 10, blue g, I, PV to get the discounted present value.

3. Interest-only calculations can be accomplished by entering 99999 in the N

4. As with the BA II Plus, balloon payments are a bit more complicated, but if you contact us, we’ll be happy to discount your balloon payment offer for free.

Website design By BotEap.comAlthough I have an HP 12C and have used it for years, I prefer the BA II Plus. In the 1980s I used one of the early Business Analyst calculators made by Texas Instruments and I loved it. When I finally used it up, I checked to buy a new one and ended up contacting Texas Instruments directly to order one. I told them I loved the machine and finally wore it out and needed a new one and was ready to buy it and they took my shipping information and sent me a new one absolutely free. I told them that they didn’t need to do that since the old calculator didn’t owe me anything but they insisted and sent me the new BA II Plus absolutely FREE. That is customer service.

Website design By BotEap.comHope you find this useful for discounting paper or notes or loans etc. If we can help you discount or purchase them from you, please contact me at your convenience.

Website design By BotEap.comThanks for your time,

Website design By BotEap.comTJ Stewart, Founder and CEO

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