On November 1,2017,FastCare sold $5,000,000 of three-year bonds for $4,750,325.
From the proceeds,the company paid accounting fees of 50,000.Interest of 5% is payable annually.What is the effective rate of interest to 2 decimal places?

Question

Quizplus · Accepted Answer

The effective interest rate is calculated by considering the net proceeds from the bond sale ($4,750,325 - $50,000) and the annual interest payments based on the bond's face value. The effective rate is higher than the nominal rate due to the discount and fees.

On November 1,2017,FastCare Sold $5,000,000 of Three-Year Bonds for $4,750,325