This question illustrates what is known as discount interest. Imagine you are discussing a loan with...
This question illustrates what is known as discount
interest. Imagine you are discussing a loan with a somewhat
unscrupulous lender. You want to borrow $34,000 for one year. The
interest rate is 20.75 percent. You and the lender agree that the
interest on the loan will be .2075 × $34,000 = $7,055. So, the
lender deducts this interest amount from the loan up front and
gives you $26,945. In this case, we say that the discount is
$7,055.
What is the interest rate on this loan? (Do not round
intermediate calculations and round your answer to 2 decimal
places, e.g., 32.16.)
Interest rate
%
Homework Answers
AS INTEREST IS DEDUCTED BEGINNING OF THE YEAR ONLY, LOAN AVAILABLE FOR USE = 26945
SO INTEREST RATE = INTEREST ON LOAN/ LOAN AVAILABLE FOR USE
INTEREST RATE = 7055/26945 = 26.18%
ANSWER : 26.18% (THUMBS UP PLEASE)
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This question illustrates what is known as discount
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