The following are three one-year “discount” loans that a bank might offer to the

Question

The following are three one-year “discount” loans that a bank might offer to the customer.

Loan A:           $230,000 at a 6 percent discount rate.

Loan B:           $220,000 at a 6.25 percent discount rate.

Loan C:           $225,000 at a 6.5 percent discount rate.

Determine the amount of interest the bank would make on each loan and indicate the amount of net proceeds that the bank would pay out on each loan.
On which loan would the customer receive the most proceeds?
Calculate the percent interest rate (APR) or effective cost of each loan. Which one has the lowest cost?

Explanation / Answer

Loan A:

$230000 discounted at 6% = $216981 is net proceeds that the bank would pay

Interest = 230000

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