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.

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%