Friday, October 24, 2008

Bank Discount

Bank Discount is a quite confusing topic. Now, I'll explain about how to count Bank Discount.

This is the formula to count bank discount -
D=Sdt

Where D = Bank discount
S
= Amount of maturity value
d
= Discount rate
t
= Term of discount in years

The net amount received by the borrower is called the proceeds.
The proceeds, P, are computed as follows:
Depends on the questions, there are 3 ways to calculat proceeds:
P=S-D
P=S-Sdt
P=S(1-dt)

Example:

Jenny borrows RM1000 for 3 months from Diddy who charges a discount rate of 10%. Find

a) the discount

D = sdt
D = 1000 x 0.1 x 3/12
= RM 25

b) the proceeds

P = S - D
P = 1000 - 25
= RM 975


It's quite easy, right?

Well,

Till then,
Zamir

Saturday, October 11, 2008

Promissory Note

For me this topic is quite easy to understand.

A promissory note is a written promise made by one person or party to repay a loan or debt on a specified future date to another person or party.
The main features of a promissory note are as follows:
-Maker
The maker is the person that signs the note

-Payee
The payee is the person to whom the payment is to be made

-Date of the note
Is the date on which the note is made

-Term of the note
Is the length of time until the note is due for payment

-Face value
Is the amount stated on the note

-Maturity value

Is the total sum of money which the payee will receive on the maturity date

-Maturity date

Is the date on which the maturity value is due

Example :
In the promissory note above,

a) The maker is Siti Nurhalijah

b) The payee is Britney Spears


c) Maturity value of the note,
Maturity value = face value + interest due

= 2500 + 2500 x 0.06 x 60/360

= Rm2525

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Examples of promissory note,

(This empty promissory note above is from the year 18xx)



(This promissory form above is from THE BANK OF UNITED STATES)



I think that's all for this topic.

Till then,
Zamir


Sunday, October 5, 2008

History of interest

Interest is the price paid for the use of savings over a given period of time. In the Middle Ages, time was considered to be property of God. Therefore, to charge interest was considered to commerce with God's property. Also, St. Thomas Aquinas, the leading theologian of the Catholic Church, argued that the charging of interest is wrong because it amounts to "double charging", charging for both the thing and the use of the thing. The church regarded this as a sin of usury; nevertheless, this rule was never strictly obeyed and eroded gradually until it disappeared during the industrial revolution.

Usury has always been viewed negatively by the Roman Catholic Church. The Second Lateran Council condemned any repayment of a debt with more money than was originally loaned, the Council of Vienna explicitly prohibited usury and declared any legislation tolerant of usury to be heretical, and the first scholastics reproved the charging of interest. In the medieval economy, loans were entirely a consequence of necessity (bad harvests, fire in a workplace) and, under those conditions, it was considered morally reproachable to charge interest.

In the Renaissance era, greater mobility of people facilitated an increase in commerce and the appearance of appropriate conditions for entrepreneurs to start new, lucrative businesses. Given that borrowed money was no longer strictly for consumption but for production as well, it could not be viewed in the same manner. The School of Salamanca elaborated various reasons that justified the charging of interest. The person who received a loan benefited and one could consider interest as a premium paid for the risk taken by the loaning party. There was also the question of opportunity cost, in that the loaning party lost other possibilities of utilizing the loaned money. Finally and perhaps most originally was the consideration of money itself as merchandise, and the use of one's money as something for which one should receive a benefit in the form of interest. Martín de Azpilcueta also considered the effect of time. Other things being equal, one would prefer to receive a given good now rather than in the future. This preference indicates greater value. Interest, under this theory, is the payment for the time the loaning individual is deprived of the money.

Economically, the interest rate is the cost of capital and is subject to the laws of supply and demand of the money supply. The first attempt to control interest rates through manipulation of the money supply was made by the French Central Bank in 1847.

The first formal studies of interest rates and their impact on society were conducted by Adam Smith, Jeremy Bentham and Mirabeau during the birth of classic economic thought. In the early 20th century, Irving Fisher made a major breakthrough in the economic analysis of interest rates by distinguishing nominal interest from real interest. Several perspectives on the nature and impact of interest rates have arisen since then. Among academics, the more modern views of John Maynard Keynes and Milton Friedman are widely accepted.

Former Central President of the JUP Sahibzada Fazal Karim MNA has stated that the Council of Islamic ideology feels that Islamic banking ought to be interest-free by law.


Credit : http://en.wikipedia.org/wiki/Simple_interest#Simple_interest

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Zamir says :

People starts using interest since the Middle Ages. Nowadays, the banks charge us at higher interest. So, don't take your own sweet time to pay your loan.

What is Business Mathematics?

Business mathematics is mathematics used by commercial enterprises to record and manage business operations. Mathematics typically used in commerce includes elementary arithmetic, such as fractions, decimals, and percentages, elementary algebra, statistics and probability. Business management can be made more effective in some cases by use of more advanced mathematics such as calculus, matrix algebra and linear programming.

Commercial organizations use mathematics in accounting, inventory management, marketing, sales forecasting, and financial analysis.

In academia, "Business Mathematics" includes mathematics courses taken at an undergraduate level by business students. These courses are slightly less difficult and do not always go into the same depth as other mathematics courses for people majoring in mathematics or science fields. The two most common math courses taken in this form are Business Calculus and Business Statistics. Examples used for problems in these courses are usually real-life problems from the business world.

An example of the differences in coursework from a business mathematics course and a regular mathematics course would be calculus. In a regular calculus course, students would study trigonometric functions. Business calculus would not study trigonometric functions because it would be time-consuming and useless to most business students, except perhaps economics majors. Economics majors who plan to continue economics in graduate school are strongly encouraged to take regular calculus instead of business calculus, as well as linear algebra and other advanced math courses, especially real analysis.