Fundamentals of Engineering Economics 3rd Edition by Chan Park

Exercise 3

A discount interest loan is a loan arrangement where the interest and any other related charges are calculated at the time the loan is closed. Suppose a one-year loan is stated as $10,000 and the interest rate is 12%. Then, the borrower pays $1,200 interest up front, thereby receiving net funds of $8,800 and repaying $10,000 in a year. What is the effective interest rate on this one-year loan?