If one borrows $1,000 at 8 percent interest on a discount basis, the effective rate of interest is 7.2 percent.

Name: If one borrows $1,000 at 8 percent interest on a discount basis, the effective rate of interest is 7.2 percent.
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The effective rate of interest is higher than the nominal rate of 8 percent when calculated on a discount basis because the interest is deducted from the loan amount upfront, reducing the actual amount received by the borrower.

If One Borrows $1,000 at 8 Percent Interest on a Discount