Question

On September 1, 2018, Hiker Shoes issued a $102,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank where the stated discount rate is 11%. Hiker's effective interest rate on this loan (rounded) is: a. 11.8%b. 11.87%c. 11.00%d. 11.79%

Answer 1

Answer:

b. 11.87%

Explanation:

interest = $102,000*11%*8/12

             = $7480

Effective interest rate = ($7480/($102000 - $7480))*12/8

                                    = ($7480/94520)*12/8

                                    = 11.87%