This machine was acquired by making a $10,500 down payment and issuing a $30,800, two-year, zero-interest-bearing note.

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Question:

This machine was acquired by making a $10,500 down payment and issuing a $30,800, two-year, zero-interest-bearing note. The note is to be paid off in two $15,400 instalments made at the end of the first and second years. It was determined that the asset could have been purchased outright for $34,000.

What was the effective interest rate used in negotiating the note payable used to acquire the machinery in Asset 3? Use Excel or a financial calculator to arrive at your answer. (Round final answer to 3 decimal places, e.g. 1.234%.)

Effective interest rate

Enter your answer in accordance to the question statement %