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Gwar [14]
3 years ago
6

On September 1, 2021, Hiker Shoes issued a $112,000, 8-month, noninterest-bearing note. The loan was made by Second Commercial B

ank where the stated discount rate is 11%. Hiker's effective interest rate on this loan (rounded) is: (Do not round intermediate calculations. Round your final answer to 2 decimal places.) Multiple Choice 11.79%. 11.80%. 11.87%. 11.00%.
Business
1 answer:
Dahasolnce [82]3 years ago
6 0

Answer: 11.88%

Explanation:

Hiker's effective interest rate on this loan will be calculated as:

Interest = Amount × Discount rate × 8/12

= 112000 × 11% × 8/12

= 112000 × 0.11 × 0.667

= 8217.44

= 8217 approximately

Effective interest rate will then be:

= (Interest / Amount - Interest) × 12/8

= 8217 /(112000 - 8217) × 3/2

= 8217/103783 × 1.5

= 0.0791748 × 1.5

= 0.1187622

= 11.88%

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