Elan Corporation is considering borrowing $100,000 from a bank for one year at a stated interest rate of 9 percent. What is the effective interest rate to Elan if this borrowing is in the form of a discounted note?
8.10 percent.
9.81 percent.
10.00 percent.
9.89 percent.
Choice "D" is correct. 9.89 percent effective interest rate on discounted note, calculated as follows:Step 1:
Step 2:
Interest charged
=
$9,000
9.89%
Divided by cash proceeds
$91,000
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