Wednesday
March 29, 2017

Post a New Question

Posted by on .

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?

  • Business finance - ,

    Please note that we don't do students' homework for them. Be sure to go back into your textbook or use a good search engine. http://hanlib.sou.edu/searchtools/

    Once YOU have come up with attempted answers to YOUR questions, please re-post and let us know what you think. Then someone here will be happy to comment on your thinking.

  • Business finance - ,

    10.38

Answer This Question

First Name:
School Subject:
Answer:

Related Questions

More Related Questions

Post a New Question