This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $17,000 for one year. The interest rate is 16.5 percent. You and the lender agree that the interest on the loan will be .165 $17,000 = $2,805. So, the lender deducts this interest amount from the loan up front and gives you $14,195. In this case, we say that the discount is $2,805.

What is the interest rate on this loan?

Interest rate =