Another method used by lenders to determine the monthly payment for a loan is the discount method In this case, the stated interest rate is called the discount rate and the formula for determining the total amount paid is where r is the discount rate and t is the term of the loan in years The month...

Another method used by lenders to determine the monthly payment for a loan is the discount method.

Question:

Another method used by lenders to determine the monthly payment for a loan is the discount method. In this case, the stated interest rate is called the and the formula for determining the total amount paid is

where r is the discount rate and t is the term of the loan in years. The monthly payment is then [total payment] / 12t.
(a) Calculate the monthly payment for a 2-year loan of $880 with a discount rate of 6%.
(b) If the add-on method were used instead, would the monthly payment be greater than or less than the amount found in part (a)?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...