In a discount interest loan, you pay the interest payment up front. For example, if a 1-year
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- In a discount interest loan, you pay the interest payment up front. For example, if a 1-year loan is stated as $15,000 and the interest rate is 10%, the borrower pays .10 $15,000 = $1,500 immediately, thereby receiving net funds of $13,500 and repaying $15,000 in a year. What is the effective interest rate on this loan?
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