A. This answer is incorrect. See the correct answer for a complete explanation.]

B. This answer is incorrect and must be incorrect because when there is discounted interest, the effective rate is always higher than the nominal rate. See the correct answer for a complete explanation.

C. When interest is discounted, the amount that will be incurred as interest is withheld from the loan proceeds given to the borrower. So, in this loan, the interest will be $9,000. However, instead of receiving $100,000 and repaying $109,000, the bank withholds the interest and loans only $91,000, while getting $100,000 when the loan matures. Therefore, the effective rate is 9.89% since the interest expense is $9,000, but only $91,000 of funds were received.

D. This answer is incorrect and must be incorrect because when there is discounted interest, the effective rate is always higher than the nominal rate. See the correct answer for a complete explanation.