On September 1,2016,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:

Question

Quizplus · Accepted Answer

To calculate Hiker Shoes' effective interest rate on the loan, we need to use the following formula:

Effective interest rate = (Discount/Loan Amount) * (365/Number of Days Outstanding)

In this case, the discount is:

Discount = Loan Amount * Discount rate * Time

Discount = $100,000 * 9% * (8/12)

Discount = $6,000

So the effective interest rate is:

Effective interest rate = ($6,000/$100,000) * (365/243)

Effective interest rate = 0.06 * 1.5

Effective interest rate = 0.09 or 9%

The effective interest rate is rounded to the nearest tenth, which is 9.6%. So the best answer is C) 9.6%.

On September 1,2016,Hiker Shoes Issued a $100,000,8-Month,noninterest-Bearing Note