Discount Interest Loans this question illustrates what is known as discount interest imagine you are discussing a
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Discount Interest Loans this question illustrates what is known as discount interest imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $20,000 for one year. The interest rate is 14 percent. You and the lender agree that the interest on the loan will be .14 X $20,000 = $2,800. So the lender deducts this interest amount from the loan up front and gives you $17,200. In this case, we say that the discount is $2,800. What’s wrong here?
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To find the APR and EAR we need to use the actual cash flows of the loan In other words the inter...View the full answer
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Related Book For
Fundamentals of Corporate Finance
ISBN: 978-0077861629
8th Edition
Authors: Stephen A. Ross, Randolph W. Westerfield, Bradford D.Jordan
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