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To: Thomas M. who wrote (116)	3/29/2001 10:36:26 AM
From: Ilaine	Read Replies (2) \| Respond to of 443

The way I understand discounting, and this is from an example I read yesterday, assume a department store orders $1000 worth of fine china from a distributor on March 1, and promises to pay on April 1 if the china arrives safely before then. The distributor can take the promise to pay $1000 to his bank, and the bank will give him the present value of the note, which is $995, so the distributor can order china from the manufacturer. I've never discounted a note but I have had notes sold, which means they were discounted. When Fanny Mae buys mortgages, they don't pay the entire value of the note, they pay less, which is discounting. Accepting notes is one of the primary functions of banks.

To: Thomas M. who wrote (116)	3/29/2001 11:42:56 PM
From: JF Quinnelly	Respond to of 443

As in "discounting paper"? If interest rates were 10% per year, what would the "present value" of a $1,000 bond be? About $910. That's a type of "discounting". Banks "discount paper" from other lenders by paying a sum for receipts, mortgages, debt obligations, etc, that gives them a yield they're willing to accept. As a business, you might have a bunch of time-payment contracts from your customers. You could take these to a bank, and they would "discount" this paper by offering you a sum for them- maybe they would offer you a sum that would give them an 18% yield at maturity for taking on the risk.