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You plan to borrow $2,000 in order to take a vacation and want to repay the loan in a year. The banker gives you another
You plan to borrow $2,000 in order to take a vacation and want to repay the loan in a year. The banker gives you another option using the discount loan method. That is, your bank will deduct the 10% interest ($200) from the principal amount up front and give you $1800. At the end of one year, you repay the full principal amount of $2000. What is the effective interest rate of this method?
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