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 $34,000 for one year. The interest rate is 13.9 percent. You and the lender agree that the interest on the loan will be .139 $34,000 = $4,726. So the lender deducts this interest amount from the loan up front and gives you $29,274. In this case, we say that the discount is $4,726.
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