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Finally, we can combine simple interest rates and discount rates to define the simple annual discount rate as:

𝑑𝑑(𝑠𝑠) = 1 𝑇𝑇(1 −𝑋𝑋0 𝑋𝑋𝑇𝑇) (13)

Certificates of deposit are often traded in terms of simple annual discount rates. This means that instead of giving the current price of the certification (𝑋𝑋0), the bank, broker, or dealer will specify the simple discount rate, which allows you to calculate the price (using the part value of the certification and a re-arrangement of Equation (13)).

Investors often find this more informative, because — returning to an important concept — it adjusts for the size and length of the loan, and thus makes the investment more easily comparable to alternatives.

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