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Category > Business & Finance Posted 20 May 2017 My Price 11.00

Calculating Inte r est Rat e

Calculating Inte r est Rat e . In a discount inte r est loan, you pay the interest payment up front. For example, if a 1-year loan is stated as $10,000 and the interest rate is 10 percent, the borrower “pays” .10 × $10,000 = $1,000 immediately, thereby receiving net funds of

$9,000 and repaying $10,000 in a year.

 

a. What is the effective interest rate on this loan?

b. If you call the discount d (for example, d = 10% using our numbers), express the effec- tive annual rate on the loan as a function of d.

c. Why is the effective annual rate always greater than the stated rate d ?

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Status NEW Posted 20 May 2017 10:05 AM My Price 11.00

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