What is the discount method of calculating interest?
Under the discount method, the interest that will be due is calculated and withheld from the borrower when the loan is made. For example, someone who borrows $1,000 for a year at a 10% interest rate would actually receive just $900 ($1,000 minus 10% of $1,000, or $100), and then pay back $1,000 a year later. The effective interest rate would thus exceed 11% ($100 divided by the $900 that the borrower had the use of during the year).
Related Questions
- The method of calculating members subscriptions includes the possibility of a discount. Which factors influence the discount?
- When calculating the cost of holding assets, what method should be used to calculate the return on equity?
- Should the Commission Adopt a Uniform Statewide Method to Calculate the Discount?
