This question illustrates what is known as discount, Ask an Expert

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This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $31,000 for one year. The interest rate is 13.6 percent. You and the lender agree that the interest on the loan will be 0.136 × $31,000 = $4,216. So the lender deducts this interest amount from the loan up front and gives you $26,784. In this case, we say that the discount is $4,216.

What is the effective interest rate?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91605516

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