What is a Discount?

Daud 1997

Case breakdown: Movie Daud

The scene that you just saw shows how Bhavani (played by Urmila Matondkar) wants to purchase a dress on the mannequin. She requests the shopkeeper for a discount. After some hilarious conversation, the shopkeeper agrees to give Bhavani a discount.

In this blog, Learning Perspectives will explore the meaning of discount.

What is a discount?

The word discount is used in many contexts, it can be used while selling clothes, bonds, shares, etc.

It is a term that is commonly used in maths, finance, and investing. Discount means an amount or percentage that is deducted from the selling price. Similar to what you saw in the scene. Shares are issued at discount as well, which means at an amount less than the par value. Bonds too, are issued at discount.

Selling Price = List price- Discount

In the above scene, the rate of the dress at the shop is Rs. 2,500. If the shopkeeper decides to give Bhavani a 10% discount, this would mean a discount of Rs. 250 (10/100*2,500). So the dress would cost Bhavani Rs. 2,500-250= Rs. 2,250. The selling price of the dress would be Rs. 2,250

To calculate the discount percentage, another formula can be used:

Rate of discount%= Discount/List price *100

Discount and discount rates are different. The discount rate is interest based on the time value of money.

Discount Rate:

In finance, the discount rate is generally used to discount future cash flows to understand the present value. Simply stating, what would be the value of cash flow today that the company will earn from a project in the future.

For example: if a project expects to pay Rs. 5,00,000 over a period of 3 years. Understanding the present value of Rs. 5,00,000 today. The difference is due to the time value of money. This is called the hurdle rate of the company, rate of return, or discount rate.

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