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

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 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)?

[loan amount] 1- rt [total payment] :

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