This question illustrates what is known as discount interest. Imagine you are discussing a loan with a
Question:
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 15.7 percent. You and the lender agree that the interest on the loan will be .157 × $20,000 = $3,140. So, the lender deducts this interest amount from the loan up front and gives you $16,860. In this case, we say that the discount is $3,140. What's wrong here?
Fantastic news! We've Found the answer you've been seeking!
Step by Step Answer:
Related Book For
Corporate Finance
ISBN: 978-0077861759
11th edition
Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan
Question Posted: