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16 May, 09:07

On September 1, 2021, Hiker Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank where the stated discount rate is 9%. Hiker's effective interest rate on this loan (rounded) is.

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  1. 16 May, 10:33
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    Multiple choices:

    A. 9.57%.

    B. 9.50%.

    C. 9.28%.

    D. 9.49%.

    Effective interest rate on the loan taken by Hiker Shoes is 9.57%, option A

    Explanation:

    The starting in arriving at the effective interest is by calculating the actual dollars amount paid as interest:

    interest=9%*$100,000*8/12

    =$6000

    effective interest=interest/actual cash received*12/8

    actual received by Hiker shoes=$100,000-$6000

    =$94000

    effective interest=$6000/$94000*12/8

    effective interest=9.57%

    Even though the discount rate stated on the note is 9%, but the actual interest cost incurred by Hiker Shoes is in the region of 9.57%
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Home » Business » On September 1, 2021, Hiker Shoes issued a $100,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial Bank where the stated discount rate is 9%. Hiker's effective interest rate on this loan (rounded) is.
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