Question

If Rs. 10 be allowed as true discount on a bill of Rs. 110 due at the end of a certain time, then the discount allowed on the same sum due at the end of double the time is:

a. Rs. 20
b. Rs. 21.81
c. Rs. 22.50
d. Rs. 25

Answer 1

The true discount on a bill or bond is affected by the time until maturity and the discounting rate, but without the specific interest rate for the discount and the formula used, a precise true discount amount for double the time period cannot be calculated.

option a is the correct

Step-by-step explanation:

The question deals with the concept of true discount and how it changes over time. A true discount is the difference between the present value (PV) and the face value (FV) of a bill or bond, which is due to be paid at a certain future date. When the time period is doubled, the present value decreases, since the money has to be invested for a longer period at the original rate before it reaches the face value.

However, it doesn’t mean that the true discount simply doubles.

To calculate the true discount for double the time without an interest rate provided, we can't directly apply the concept of the present value of a bond here, especially without the interest rate and the exact formula for discounting. In finance, the present value of a future cash flow can be calculated by discounting it back to the present time at a certain rate, which is similar to the computational methods explored in our bond examples. Still, given the above details on Rs. 10 discount on Rs. 110, without further information, a specific numerical answer for the true discount for the double time period cannot be accurately provided.