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14 July, 12:10

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.

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  1. 14 July, 12:22
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    b. Less than the effective interest rate

    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.
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