Saturday
December 20, 2014

Homework Help: Business finance

Posted by Bryan on Monday, January 10, 2011 at 9:15pm.

In a discount interest loan, you pay the interest payment up front. For example, if a 1-year loan is stated as $10,000 and the interest rate is 10 percent, the borrower “pays” 0.10 x $10,000 = $1,000 immediately, thereby receiving net funds of $9,000 and repaying $10,000 in a year.

a. What is the effective interest rate on this loan?
b. If you call the discount d (for example, d= 10% using our numbers), express the effective annual rate on the loan as a function of d.
c. Why is the effective annual rate always greater than the stated rate d?

Answer this Question

First Name:
School Subject:
Answer:

Related Questions

Business Finance - Assume a bank loan requires a interest payment of $85 per ...
Finance - Five years ago, you bought a house for $151,000. You had a down ...
Math Finance please help - Five years ago, you bought a house for $151,000. You ...
MATH - Five years ago, you bought a house for $151,000, with a down payment of $...
eco - Suppose a person pays $80 of annual interest on a loan that has a 5 ...
Finance - you have contacted a number of dearlerships to determine the best ...
Finance - you have contacted a number of dearlerships to determine the best ...
Finance - you have contacted a number of dearlerships to determine the best ...
Finance - you have contacted a number of dearlerships to determine the best ...
Maths - Amortization of a $1000 Loan Interest Monthly payment rate 15yr 20yr ...

Search
Members