Question

In: Finance

This question illustrates what is known as discount interest. Imagine you are discussing a loan with...

This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $18,000 for one year. The interest rate is 16.75 percent. You and the lender agree that the interest on the loan will be .1675 × $18,000 = $3,015. So, the lender deducts this interest amount from the loan up front and gives you $14,985. In this case, we say that the discount is $3,015. What is the interest rate on this loan? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.) Interest rate ___%

Solutions

Expert Solution

Using financial calculator
Input:

PV = 14985

Fv = -18000

N = 1

Solve for I/Y as 20.12

Interest rate on the loan = 20.12%

jeff jeffy answered 2 years ago
Next > < Previous

Related Solutions

This question illustrates what is known as discount interest. Imagine you are discussing a loan with...
This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $30,000 for one year. The interest rate is 19.75 percent. You and the lender agree that the interest on the loan will be .1975 × $30,000 = $5,925. So, the lender deducts this interest amount from the loan up front and gives you $24,075. In this case, we say that the discount is $5,925. What is...
NOTE FOR QUESTION 9: In a discount interest loan, the interest is deducted from the amount...
NOTE FOR QUESTION 9: In a discount interest loan, the interest is deducted from the amount the borrower receives at the beginning of the loan. For example, if a bank makes a one-year loan of $10,000 at a simple interest rate of 5%, the borrower essentially borrows $9,500 at the beginning of the year and repays it with no interest at the end of the year. 9.A bank offers your firm a discount interest loan at 8.25 percent for up...
Imagine that you will have $55,000 in student loan debt when you graduate. The annual interest...
Imagine that you will have $55,000 in student loan debt when you graduate. The annual interest rate on the loan is 6.5%. The loan is amortized over 10 years, with payments due monthly. If you forgo Starbucks and opt to bring your coffee to work, you can make a payment of $250 in addition to your required minimum payment every third month, beginning with month 3. You want to determine how much interest you will save if you make this...
Explain the differences between a pure discount loan, an interest-only loan, and a level-payment amortized loan....
Explain the differences between a pure discount loan, an interest-only loan, and a level-payment amortized loan. Explain interest rate risk. What are the three elements in every time value of money calculation?
Question: In regard to a bond discount or premium, what is the effective-interest amortization method?
  Question: In regard to a bond discount or premium, what is the effective-interest amortization method?
Imagine that you and a colleague are discussing your respective interests in international nursing. You would...
Imagine that you and a colleague are discussing your respective interests in international nursing. You would like to find a way to use your skills to help those in foreign countries, and your colleague states that he would like to make a career in international nursing. What are some ways you might find to use your skills internationally without committing to a career in international nursing? How should your colleague prepare himself for a career in international nursing?
Imagine that you and a colleague are discussing your respective interests in international nursing. You would...
Imagine that you and a colleague are discussing your respective interests in international nursing. You would like to find a way to use your skills to help those in foreign countries, and your colleague states that he would like to make a career in international nursing. What are some ways you might find to use your skills internationally without committing to a career in international nursing? How should your colleague prepare himself for a career in international nursing?
Imagine a company is evaluating taking a 20,000,000 loan at a 10% interest rate, with 2%...
Imagine a company is evaluating taking a 20,000,000 loan at a 10% interest rate, with 2% principal mandatory amortization and a maturity of 10 years on January 1, 2020. Create the necessary schedule(s) for the company so that they can make a proper evaluation.
Points are also known as: A.Third party charges B. Reduction in payment amount C. Loan discount...
Points are also known as: A.Third party charges B. Reduction in payment amount C. Loan discount fees D. Reduction in mortgage yield
Describe how a bank increases the money supply. Explain what are a discount loan, a discount...
Describe how a bank increases the money supply. Explain what are a discount loan, a discount rate, and excess reserves. Explain what are required reserve ratio, required reserves, and reserves. Explain what a bank panic and a bank run are. Give an example of how a bank panic happens and when it happened last.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT