If you borrow R2,000 from a bank for one year at a stated annual interest rate of 14 percent, but interest is prepaid (a discounted loan), then what is your effective annual rate?

Question

Quizplus · Accepted Answer

In a discounted loan, interest is deducted from the principal at the beginning. The interest is 14% of R2,000, which is R280. The amount received is R2,000 - R280 = R1,720. The effective annual rate is calculated as (Interest/Amount Received) * 100 = (R280/R1,720) * 100 = 16.28%.

If You Borrow R2,000 from a Bank for One Year