On September 1, 2021, Hiker Shoes issued a $106,000, 6-month, noninterest-bearing note. The loan was made by Second Commercial Bank where the stated discount rate is 11%. Hiker's effective interest rate on this loan (rounded) is:

Effective interest rate = [ (Interest value of loan / Amount of loan after payment of interest) * (Number of months annually / Number of months notes hold) ] * 100

= [ ($5,830 / $100,170) * (12 / 6) ] * 100

= 0.1164 * 100

= 11.64%

1.

Computation the interest value of loan is:

Interest value of loan = Amount of loan * 8 / 12 * Percentage of discount

= ($106,000 * 6 / 12) * 0.11

= $5,830

2.

Amount of loan after payment of interest = Amount of loan - Interest value of loan

= $106,000 - $5,830

= $100,170