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