On December 31, 2020, Reagan Inc. signed a lease with Silver Leasing Co. for some equipment having a seven-year useful life. The lease payments are made by Reagan annually, beginning at signing date. Title does not transfer to the lessee, so the equipment will be returned to the lessor on December 31, 2026. There is no purchase option, and Reagan guarantees a residual value to the lessor on termination of the lease. Reagan's lease amortization schedule appears below:

Dec. 31	Payments			Interest			Decrease in Balance			Outstanding Balance
2020										$	523,076
2020	$	95,200					$	95,200			427,876
2021	$	95,200		$	25,673			69,527			358,349
2022	$	95,200			21,501			73,699			284,649
2023	$	95,200			17,079			78,121			206,528
2024	$	95,200			12,392			82,808			123,720
2025	$	95,200			7,423			87,777			35,943
2026	$	38,100			2,157			35,943			0

What is the effective annual interest rate charged to Reagan on this lease?

Multiple Choice

6%.

2%.

8%.

13%.