Please show all work and explain
Homework Answers
Answer - Pure discount loan.
Reason - Here a interest rate or 7.4% ( 185 ÷ 2500 * 100 = 7.4%) is charged on the borrowing in a one year borrowing period and the borrower is paying the interest along with whole principal after a year.
This is an example of pure discount loan where the borrower has no multiple payment dues rather the loan is repaid with interest at the end of fixed period and the loan is a short term arrangement.
This kind of loans are be beneficial when the borrower is confident that the borrowed money will repay him more than the interest charged to him at the end of a specific period or the money has a value return of higher than 7.4% for him after a year in present case.
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