Question: On July 1, 2007, Leach Company needs exactly 103,200 dollar in cash to pay an existing obligation. Leach has decided to borrow from State Bank, which charges 14 percent interest on loans. The loan will be due in one year. Leach is hesitant, however, whether to ask the bank for A] an interest-bearing loan with interest and principle payable at the end of the year or B] a loan due in one year but with interest deducted in advance.
Determine the effective interest rate on the note assuming that
[A] If interest is paid when the loan is due
[B] If interest is deducted in advance