This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulouslender. You want to borrow $25,000 for one year. The interest rate is 13.4 percent.You and the lender agree that the interest on the loan will be .134 X $25,000 =$3,350. So the lender deducts this interest amount from the loan up front and givesyou $21,650. In this case, we say that the discount is $3,350. What's wrong here?