On January 1, 2015, Wilmes Floral Supplies borrowed $2,413 from Bower Financial Services. Wilmes Floral Supplies gave Bower a $2,500 note with a maturity date of December 31, 2016. The note specified an annual stated interest rate of 8 percent.
a. Compute the present value of the note’s future cash flows at the following discount rates:
(1) 8 percent
(2) 10 percent
(3) 12 percent
b. What is the effective interest rate of the note?
c. Determine the effective interest rate on the note if Wilmes Floral Supplies originally borrowed $2,500.