Wize University Introduction to Finance Textbook > Time Value of Money
Pure-Discount Loan
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Pure Discount Loan
A pure discount loan is a loan that requires only a single lump-sum payment at the end of the term which includes the principal borrowed plus all accumulated interest.
The amount to be repaid is the future value of the loan.
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Example: Pure-Discount Loan
You agree to borrow $40,000 today using a pure-discount loan with an effective annual rate of 6% for 6 years. How much will you repay at the end of the 6th year?
Practice: Pure-Discount Loan
Eight years ago you borrowed money to pay for a 4-month long trip to Australia. Today is the due date of the pure-discount loan, and you must repay $89,009.33. The loan carried an 8.9% annual interest rate, how much did you borrow?
Round your final answer to the nearest dollar.