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

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 $15,000 for one year. The interest rate is 14 percent. You and the lender agree that the interest on the loan will be .14 × $15,000 = $2,100. So, the lender deducts this interest amount from the loan up front and gives you $12,900. In this case, we say that the discount is $2,100.

What is the interest rate on this loan? (Round your answer as directed, but do not use rounded numbers in intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).)

This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $15,000 for one year. The interest rate is 14 percent. You and the lender agree that the interest on the loan will be .14 × $15,000 = $2,100. So, the lender deducts this interest amount from the loan up front and gives you $12,900. In this case, we say that the discount is $2,100.

Explanation / Answer

Interest Rate = Interest Paid / Amount Borrowed

= 2,100 / 12,900

= 16.28% is the interest rate on this loan

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