Estrella Northway: Simple Interest: Interest = Principal * Rate * Time Time is given in years so in your case, principal is given, but let's try 100 I = 100 * .075 * 1.5 I = 11.25 so APR = 11.25/1.5 = .075 or 7.5%now for discounted method., instead of getting the full 100 dollars, you pay the interest up front and only get 100-11.25 or 88.75. the effective rate of interest would be the interest amount divided by what you actually receive and this total divided by the length of the loan (1.5) or (11.25/88.25) / 1.5 which equals 8.45%...Show more
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