Explore BrainMass

Explore BrainMass

    Effective Interest Rate on a Discount Interest Loan

    Not what you're looking for? Search our solutions OR ask your own Custom question.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    In a discount interest loan, you pay the interest payment up front. For example, if a 1-year loan is stated as $16,000 and the interest rate is 10.75%, the borrower "pays" .1075 Ã- $16,000 = $1,720 immediately, thereby receiving net funds of $14,280 and repaying $16,000 in a year.

    a. What is the effective interest rate on this loan? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

    Effective interest rate = %______________

    © BrainMass Inc. brainmass.com December 24, 2021, 10:16 pm ad1c9bdddf
    https://brainmass.com/business/interest-rates/effective-interest-rate-discount-interest-loan-457422

    Solution Summary

    This solution illustrates how to compute the effective interest rate on a discount interest loan.

    $2.49

    ADVERTISEMENT