If an investor were to borrow $10,000 from a bank at an 8% interest rate and the bank uses a discount method, what is the effective interest rate?

Question

Quizplus · Accepted Answer

In the discount method, interest is deducted from the principal before the borrower receives the funds. The effective interest rate is calculated as the interest divided by the amount received: $800 / $9,200 = 8.7%.

If an Investor Were to Borrow $10,000 from a Bank