Business finance

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?

  1. 👍 0
  2. 👎 0
  3. 👁 329
  1. 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.

  2. 10.38

    1. 👍 0
    2. 👎 0

Respond to this Question

First Name

Your Response

Similar Questions

  1. Algebra 2

    Claire has borrowed $\$5,\!000$. She plans to pay off the loan in full after two payments. She will make one payment in 3 years, then another payment in 6 years. The second payment will be exactly double the amount of the first

    asked by Bob on April 4, 2017
  2. business math

    Jill Ley took out a loan to pay for her child's education for $60,000. The loan would be repaid at the end of 8 years in one payment with an interest of 6 percent. The total amount Jill has to pay back at the end of the loan is:

    asked by Anonymous on December 26, 2011
  3. math

    Case: A borrower received a 30-year ARM mortgage loan for $200,000. Rate caps are 3/2/6. The start rate is 3.50% and the loan adjusts every 12 months for the life of the mortgage. The index used for this mortgage is LIBOR (for

    asked by jim on May 7, 2020
  4. Algebra

    Joanie takes a $6000 loan to pay for her car. The interest rate on the loan is 12%. She makes no payments for 4 years, but has to pay back all the money she owes at the end of 4 years. How much more money will she owe if the

    asked by Cassie on April 1, 2009
  5. Math

    Loan Amount: $13,000 Method of payment: discount basis Amount of Interest: $625 Term of loan: 1 year Effective Rate of Interest (to the nearest tenth): _____ %

    asked by beyonce on April 13, 2020
  1. eco

    Suppose a person pays $80 of annual interest on a loan that has a 5 percent annual interest rate. The loan amount is: A. $400. B. $1,600. C. $160. D. $85. 10. Suppose a loan customer is considering two alternative $22,000 loans.

    asked by matt on May 26, 2011
  2. Math Check My Work Please 2

    15. Lisa takes a loan of $10,500 at a 9% simple interest rate for 7 years. a. How much interest will she pay after 3 years? b. How much interest will she pay in total for the loan? $2,835.00; $6,615.00 $8,280.00; $9,720.00*

    asked by SmartyPants on March 13, 2015
  3. math

    Joe is getting ready to buy a car. He has $20,000 in investments earning 4.9% annually. The car also costs $20,000. If he doesn’t pay cash for the car, Joe can get a loan at 2.9% interest for 5 years. The loan is structured so

    asked by Denise on July 29, 2012
  4. Algebra

    Financial Project Five years ago, you bought a house for $171,000. You had a down payment of $35,000, which meant you took out a loan for $136,000. Your interest rate was $5.6% fixed. You would like to pay more on your loan. You

    asked by Torra on November 9, 2011
  5. Maths

    Amortization of a $1000 Loan Interest Monthly payment rate 15yr 20yr 25yr 30yr 9.5% $10.45 $9.33 $8.73 $8.41 10.0% $10.75 $9.66 $9.09 $8.78 10.5% $11.06 $9.99 $9.45 $9.15 11.0% $11.37 $10.33 $9.81 $9.53 11.5% $11.69 $10.66 $10.16

    asked by Jen on March 12, 2008
  6. math

    Loan Amount: $15,000 Method of payment: discount basis Amount of Interest : $650 Term of loan: 1 year Effective Rate of Interest (to the nearest tenth): I tried to work this out but I got it completely WRONG !!

    asked by sarah on July 10, 2013

You can view more similar questions or ask a new question.