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This question illustrates what is known as discount interest . Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow

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 12.5 percent. You and the lender agree that the interest on the loan will be .125

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