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On April 31, 2018, Elkhorn Associates borrowed $10 million cash from Colonial Bank and issued a 5-month, noninterest-bearing note, priced to yield an effective interest rate of 10%. The stated discount
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On April 31, 2018, Elkhorn Associates borrowed $10 million cash from Colonial Bank and issued a 5-month, noninterest-bearing note, priced to yield an effective interest rate of 10%. The stated discount rate on this loan is:

a. More than the effective interest rate.
b. Less than the effective interest rate.
c. Equal to the effective interest rate.
d. Unrelated to the effective interest rate.

User Nevermore
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4 votes

Answer:

b. Less than the effective interest rate

Step-by-step explanation:

The stated discount rate on this loan is Less than the effective interest rate

As the note is noninterest-bearing note, the stated discount rate on this loan is less than the effective interest rate.

User Sanjeev Sangral
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