On April 31, 2016, Elkhorn Associates borrowed $10 million cash from Colonial Bank and issued a 5-month,

Question:

On April 31, 2016, Elkhorn Associates borrowed $10 million cash from Colonial Bank and issued a 5-month, non-interest-bearing note, priced to yield an effective interest rate of 10%. The stated discount rate on this loan is:

1. More than the effective interest rate.

2. Less than the effective interest rate.

3. Equal to the effective interest rate.

4. Unrelated to the effective interest rate

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...