On January 1, 2018, Morris Production leased a machine from Werner Leasing. Werner Leasing purchased the machine with $420,000. Lease payments are made annually. Title does not transfer to the lessee and there is no purchase option or guarantee of a residual value by Morris. Payments are made annually starting with the beginning of the lease. The asset has an expected economic life of 30 years. Portions of the Morris Production's lease amortization schedule appear below: Jan. 1 Payments Effective Interest Dec. in Balance Carry Amount 374,596 2018 40,000 40,000 334,596 2018 40,000 33,460 6,540 328,056 2019 40,000 32,806 7,194 320.861 2020 40,000 32,086 7,914 312,947 2021 40,000 31,295 8,705 304,242 2022 40,000 30,424 9,576 294,666 2023 40,000 29,467 10,533 284,133 -- -- 2035 40,000 9,948 30,052 69,422 2036 40,000 6,942 33,058 36,364 2037 40,000 3,636 36,364 0 1. What is the effective annual interest rate? O 12%. O 10%. O 11%