Legal Definitions - discount

A discount, as both a noun and a verb, signifies a reduction from the standard or original amount. As a noun, it refers to the amount by which a price, value, or debt is lowered. This can be a straightforward reduction in the asking price for goods or services. In finance, a discount can also represent an advance deduction of interest or a fee from a future payment or a financial instrument to determine its present value. As a verb, to discount means to apply such a reduction.

• Example 1 (Retail Price Reduction): A local electronics store advertises a "Flash Sale" offering 15% off all laptops for one day only. A customer purchases a laptop originally priced at $800, but due to the sale, pays only $680.

  Explanation: This illustrates a discount as a direct reduction in the asking price for a good. The store applies a specific percentage reduction to the laptop's original price, making the final cost less than the standard amount.

• Example 2 (Financial Instrument): A construction company holds a bill of exchange for $50,000, payable in 90 days. Needing immediate capital, the company sells this bill to a bank for $48,500. The bank has effectively "discounted" the bill by $1,500.

  Explanation: Here, the $1,500 represents a discount in a financial context. The bank deducts an amount upfront from the future value of the bill, accounting for the time value of money and the risk of waiting 90 days, thereby determining its present value.

• Example 3 (Service or Bulk Purchase): A gym offers a monthly membership for $50, but if a new member signs up for an annual contract and pays upfront, the total cost is $480. This effectively reduces the monthly cost to $40.

  Explanation: This demonstrates a discount applied to a service, often as an incentive for a longer commitment or bulk payment. The gym provides a lower effective monthly price for the annual upfront payment compared to the month-to-month option, encouraging a more extended membership.