This question illustrates what is known as discount interest. Imagine you are discussing a loan with a
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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 14 percent. You and the lender agree that the interest on the loan will be .14 × $15,000 = $2,100. So, the lender deducts this interest amount from the loan up front and gives you $12,900. In this case, we say that the discount is $2,100. What's wrong here?
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Related Book For 
Essentials of Corporate Finance
ISBN: 978-0078034756
8th edition
Authors: Stephen Ross, Randolph Westerfield, Bradford Jordan
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