Discount interest-what is the interest rate on this loan

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Reference no: EM13921445

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 17.25 percent. You and the lender agree that the interest on the loan will be .1725 × $20,000 = $3,450. So, the lender deducts this interest amount from the loan up front and gives you $16,550. In this case, we say that the discount is $3,450.

Required:

What is the interest rate on this loan?

Reference no: EM13921445

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