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Examine what is known as discount interest

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Question: Discount Interest Loans. This question illustrates what is known as discount interest. Imagine you are discussing a loan with a somewhat unscrupulous lender. You want to borrow $18,000 for one year. The interest rate is 13.5 percent. You and the lender agree that the interest on the loan will be .135 × $18,000 = $2,430. So, the lender deducts this interest amount from the loan up front and gives you $15,570. In this case, we say that the discount is $2,430. What's wrong here?

Reference no: EM131728300

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