This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $15,000 for one year. The interest rate is 16 percent. You and the lender agree that the interest on the loan will be .16 × $15,000 = $2,400. So, the lender deducts this interest amount from the loan up front and gives you $12,600. In this case, we say that the discount is $2,400. What’s wrong here?