This question illustrates what is known as discount interest.Imagine you are discussing a loan with a somewhat unscrupulouslender. You want to borrow $27,000 for one year. The interest rateis 13.2 percent. You and the lender agree that the interest on theloan will be .132 × $27,000 = $3,564. So the lender deducts thisinterest amount from the loan up front and gives you $23,436. Inthis case, we say that the discount is $3,564. What is theeffective interest rate?