This question illustrates what is known as discount interest. Imagine you are discussing a loan...
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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 $33,000 for one year. The interest rate is 13.8 percent. You and the lender agree that the interest on the loan will be .138 $33,000 = $4,554. So the lender deducts this interest amount from the loan up front and gives you $28,446. In this case, we say that the discount is $4,554.
| 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.) |
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