Question

This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $32,000 for one year. The interest rate is 13.7 percent. You and the lender agree that the interest on the loan will be .137 * $32,000 = $4,384. So the lender deducts this interest amount from the loan up front and gives you $27,616. In this case, we say that the discount is $4,384. 

What is the effective annual rate? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual rate           %

Answer 1

Given,

Borrowed today (present value) = $ 27616

Amount repayment (future value) = $ 32000

Solution :-

Let effective annual rate ber' رحمام Future Value - Present Value(178) $32000 = $2 $32000 = 1tr $27616 1. 1587 - It & 1.1587 -1 0.1587 = = x x 8 = O. 1587 or 15.87% Thus, effective annual rate is 15.87%