CFA Practice Question

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CFA Practice Question is borrowing $1 million at 10% for a year on a discount basis with a bank. How much of the funds are available for use? What is the effective cost of interest?
A. $1,000,000; 10.0%
B. $900,000; 10.0%
C. $900,000; 11.1%
Explanation: On a discount basis, the interest is subtracted from the amount borrowed ($1 million - $100,000 interest) and the effective cost is $100,000 / $900,000 = 11.1%.

User Contributed Comments 1

User Comment
NickGerli Isn't C calculated on add-on basis?
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