Refer to the following lease amortization schedule. The 10 payments are made annually starting with the beginning of the lease. Title does not transfer to the lessee and there is no purchase option or guaranteed residual value. The asset has an expected economic life of 12 years. The lease is noncancelable.

Payment		Cash Payment		Effective Interest		Decrease in balance		Outstanding Balance
								75,939
1		12,000		0		12,000		63,939
2		12,000		7,673		4,327		59,612
3		12,000		7,153		4,847		54,765
4		12,000		6,572		5,428		49,337
5		12,000		5,920		6,080		43,257
6		12,000		5,191		6,809		36,448
7		12,000		4,374		7,626		28,822
8		12,000		3,459		8,541		20,281
9		12,000		?		?		?
10		12,000		?		?		?

What is the effective annual interest rate? (Round final answer to the nearest whole percentage.)

Multiple Choice

• 10%.

• 12%.

• 14%.

• 9%.