Question

In this question we will check if a discount is actually a discount. Say you are to borrow $100 for a year at a simple interest rate of 10%. Determine the discount D and the proceeds P for this loan. Next take another look at the situation. You take away P dollars and at the end of the year you pay $100 what rate of simple interest did you actually pay and is this rate more or less than the 10% of the loan with the discount.

I got 110% Can someone help me with this ?

Answer 1

Loan proceeds: <i>Net amount disbursed by a lender to a borrower, under the terms of a loan agreement.</i> from
http://www.businessdictionary.com/definition/loan-proceeds.html
So proceeds,
P = amount disbursed by lender = $100

Discount
= maturity value * rate * time (years)
http://www.ajdesigner.com/php_bank_discounts/bank_discount.php
Discount
D=$110 * 0.10 * 1
=$11

Part B:
P=$100
At the end of the year, you pay back $100.
What is the rate, is this more, or less than 10% ?

Answer 2

If you pay back $100 at the end of the year you didnt pay back any interest it was less than 10% of the loan with the discount

Answer 3

Exactly. In fact, you borrowed $100, you pay back $100, so the interest is ... zero!