Suppose a man has to pay Rs.156 after 4 years and the rate of interest is 14% per annum.
Clearly, Rs. 100 at 14% will amount to Rs. 156 in 4 years, So, the payment of Rs. 100 now will clear off the debt of Rs. 156 due 4 years hence. We say that:
Sum due= Rs. 156 due 4 years hence;
Present Worth (P.W) = Rs. 100;
True Discount (T.D) = Rs. (156100)= Rs. 56 = (Sum due) (P.W).
We define: T.D=Interest on P.W.
Amount= (P.W) + (T.D).
Interest is reckoned on P.W and true discount is reckoned on the amount.
