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On October 31, 2021, Simeon Builders borrowed $16 million cash and issued a 7-month, noninterest-bearing note. The loan was made by Star Finance Co. The stated discount rate is 8%. Sky's effective interest rate on this loan is:______

Respuesta :

jepessoa

Answer:

A) More than the stated discount rate of 8%.

Explanation:

to determine effective interest rate:

$16,000,000 x 8% x 7/12 = $746,666,67

[$746,666,67 / ($16,000,000 -$746,666,67)] x 7/12 = ($746,666,67 / $15,253,333.33) x 12/7 = 0.0839 or 8.39%

since the effective interest rate is 8.39%, it means that it is higher than the stated discount rate