Topics › Loan with Discount – Effective Rate
Loan with Discount – Effective Rate
Converts a loan with a discount (disbursement below 100 %) into the comparable effective rate.
Type values, assign them with the value keys and press "Solve". It is the same financial calculator as under "Calculator" in the menu above.
Examples for this calculator
Each example is a story with explanation and a "what you learn" takeaway.
Formula
Internal rate from actual disbursement, installments and remaining debt
How the formula works
With a discount less is disbursed than you owe – a prepaid interest. The calculator takes the actual disbursement as the present value and finds the rate that fits the installments and remaining debt. This is how the effective rate exposes the seemingly low nominal rate.
Cash-flow IRR with the real disbursement as the present value.
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