This question illustrates what is known as discount interest. Imagine you are di

Question

This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $27,000 for one year. The interest rate is 13.2 percent. You and the lender agree that the interest on the loan will be.132 times $27,000 = $3,564. So the lender deducts this interest amount from the loan up front and gives you $23,436. In this case, we say that the discount is $3,564. What is the effective interest rate? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation / Answer

Effective interest rate is = 3564/23436 = 15.21%

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