Question

Nor Corporation borrowed money using a discounted note at 94 with a stated 6% interest rate and a face amount of $400,000. What is the effective rate of interest on the debt

Answer 1

the effective rate of interest on the debt is 6.38%

Step-by-step explanation:

The computation of the effective rate of interest on the debt is shown below:

Effective rate of interest is

= ($400,000 × 6%) ÷ ($400,000 × 0.94)

= $24,000 ÷ $37,600

= 6.38%

Hence, the effective rate of interest on the debt is 6.38%

It could be determined by applying the above formula so that the correct rate could come