How to Discount Paper


I am repeatedly asked how to discount paper. Many people think that this is a magic system used to discount a note or a mortgage loan for a specific yield, but it is really quite simple if you have the right tools. I will show you below step by step how to discount a note using both HP-12C and Texas Instruments Business Analyst II Plus or BA II Plus.

Generally, you should start by putting the terms of the existing loan into your calculator. In this example, we use a $ 100,000 loan or note with a starting balance of $ 100,000 payable monthly at 6% interest and fully amortized for 30 years. When this is in our calculator, we settle for payment. Now let’s assume that we want to repay this loan to give 10%. Since the loan already exists, we cannot change the loan terms, but we can change what we would pay for this loan to obtain our 10% dividend. With the above information already in our economic calculator we change the interest rate to 10% and solve for PV or present value.

Using the BA II Plus, the key strokes would be as follows:

1. Clear the financial records with the beige 2. key and then press the beige CLR TVM. I generally repeat this process by pressing the 2nd key and also pressing CLR WORK, and some even add the 2nd key followed by the RESET key.

2. Then insert the terms of the above existing loan: 6 I / Y, 100,000 PV, 360 N and solve for the payment by hitting the CPT key followed by the PMT key. The calculator should read -599.55. The number is negative because the calculator tells us that this is an OUTPUT payment against an incoming payment which would be positive.

3. Then we put our new dividend of 10% in the calculator by putting 10 in the calculator and then pressing I / Y to set the new interest rate per year to 10%.

4. Next we press CPT and PV to calculate the new present value and we get 68,319.27. This means that if you needed a 10% return on your invested funds on the note described above, you would pay $ 68,319.27 for it. The difference between $ 100,000 and $ 68,319.27 is $ 31,680.73, which is the discount. This is a discount of approx. 32% ($ 31,680.73 divided by $ 100,000.00 = .3168 or rounded to .32 or 32%)

If the above note were now seasoned for 3 years or 36 months, when we changed interest or I / Y from 6 to 10, we would also change N from 360 to 324, which is 360 – 36. Then we would solve for PV as we did above and get $ 67,056.46 as our discounted price.

If you are working with interest payments, enter N as 99999. It is a little more difficult to work with balloon payments, so contact us and we will discount it for you as a free service.

Entering data on 12C is slightly different from BA II Plus. To multiply 3 times 6 on BA II, you entered the numbers just as you would say them; 3, X, 6, = and you get 18. At 12C, you enter 3, enter the key, 6 and then X at times and you get the answer of 18.

To run the same discount at 12C, we will re-enter the terms of the banknote or loan as it currently exists. We would clear it by pressing the beige f key and then CLX to clear the financial records.

Then proceed as follows:

1. 100000, PV, 360 N, 6 blue g key I, PMT and we would get the same payment as above -599.55. Again, negative numbers are sums and positive numbers are sums that come in.

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

3. Only interest calculations can be obtained by entering 99999 in N

4. As with BA II Plus, balloon payments are a bit more difficult, but if you contact us, we will be happy to discount your balloon payment agreement for free.

While I have an HP 12C and have used it over the years, I prefer BA II Plus. Back in the 80s, I used one of the first Business Analyst calculators Texas Instruments ever made and loved it. When I finally wore it out, I checked around to buy a new one and ended up contacting Texas Instruments directly to order one. I told them how I love the machine and finally carried 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 for free. I told them that they didn’t have to do it since the old calculator owed me nothing, but they insisted and sent me the new BA II Plus totally FREE. Now it’s customer service.

I hope you find it helpful in discounting paper, notes or loans, etc. If we can help you discount them or buy them from you, please contact me at your convenience.

Thank you for your time,

T J Stewart, Founder and CEO