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

question 80

True/False

If one borrows $1,000 at 8 percent interest on a discount basis, the effective rate of interest is about 8.7 percent.

---

Definitions:

Cash Interest

The actual amount of interest paid in cash by a borrower during a given period for the use of borrowed funds.

Interest Expense

The cost incurred by an entity for borrowed funds, reflecting the interest payments due on any type of debt for a specific period.

Issuing Company

A corporation or entity that releases or sells financial instruments like stocks or bonds to raise capital.

Trustee

An independent party appointed to represent the bondholders.