The effective interest rate generally is lower if the loan is a discount loan. It is not affected by whether the loan is a discount loan or higher on a loan if interest is paid at maturity. It is higher if the loan is a discount loan.
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The effective interest rate takes into account the compounding of interest, and it represents the true cost of borrowing or the true return on investment. Show more…
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A discount interest loan is a loan arrangement where the interest and any other related charges are calculated at the time the loan is closed. Suppose a one-year loan is stated as $10,000 and the interest rate is 14%. Then, the borrower pays $1,400 interest up front, thereby receiving net funds of $8,600 and repaying $10,000 in a year. What is the effective interest rate on this one-year loan?
Andrew D.
In a discount interest loan, you pay the interest payment upfront. For example, if a 1-year loan is stated as $28,000 and the interest rate is 12.25%, the borrower "pays" 0.1225 Ă— $28,000 = $3,430 immediately, thereby receiving net funds of $24,570 and repaying $28,000 in a year. What is the effective annual rate on a 1-year loan with an interest rate quoted on a discount basis of 22.25%? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Akash M.
What is the effective rate of a 3- month discounted loan borrowing of P4 million if the interest rate is 10 percent? Some other answer 10.38 percent 10.25 percent 11.11 percent
Madhur L.
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