Your local bank just loaned you $1,501. This amount is net of a 10% discount on the loan proceeds, which serves as interest on the loan. You are to repay the loan in one year. What is the effective rate
At which you borrowed?

Question

Quizplus · Accepted Answer

The loan amount is $1,501, which is 90% of the principal (since 10% is the discount). The principal is $1,501 / 0.9 = $1,668.89. The interest is $1,668.89 - $1,501 = $167.89. The effective interest rate is $167.89 / $1,501 = 11.11%.

Your Local Bank Just Loaned You $1,501