This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $20,000 for one year. The interest rate is 11 percent. You and the lender agree that the interest on the loan will be .11 × $20,000  = $2,200. So the lender deducts this interest amount from the loan up front and gives you $17,800. In this case, we say that the discount is $2,200. What’s wrong here?