ACC tax ch 13 What is the effective interest rate rounded on

ACC tax ch 13

What is the effective interest rate (rounded) on a 1-year, noninterest-bearing note with a stated rate of 5% and a maturity value of $107,530? _________% Answer as a percentage rounded to 2 decimal places. Example .1111would be answered 11.11) DO NOT USE a % sign in your answer

Solution

As per the effective rate of interest formula,

Interest Amount = Maturity Value x Stated Rate of interest

Effective rate = Interest amount/(Maturity value – Interest Amount)

So using the same,

$107,530 x 5% = $5,376.50
$5,376.50/($107,530 - $5,376.50) = 5.26% (Rounded)

Hence effective rate of interest is 5.26%