Question: |
What is the discount method of calculating interest? |
Category: |
Business & Finance > Personal Finance |
Keywords: |
discount method, calculate, interest, rate |
Type: |
what |
Rating: (0 ratings) Views: 377 Discussions: 0 In Watch Lists: 1 |
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Answer:
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Under the discount method, the interest that will be due is calculated and withheld from the borrower when the loan is made. For example, someone who borrows $1,000 for a year at a 10% interest rate would actually receive just $900 ($1,000 minus 10% of $1,000, or $100), and then pay back $1,000 a year later. The effective interest rate would thus exceed 11% ($100 divided by the $900 that the borrower had the use of during the year).
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What is the discount method of calculating interest?
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