From the Following Extract of an Amortisation Schedule Pertaining to a Compound

question 38

Multiple Choice

From the following extract of an amortisation schedule pertaining to a compound financial instrument,what is the effective-interest rate embodied in the instrument? $$\begin{array} { | c | r | r | r | r | r | r | } \hline \text { Period } & \begin{array} { c } \text { Opening } \\\text { liability }\end{array} & \begin{array} { c } \text { Effective } \\\text { interest }\end{array} & \text { Coupon rate } & \begin{array} { c } \text { Discount } \\\text { amortisation }\end{array} & \begin{array} { c } \text { Balance of } \\\text { discount }\end{array} & \text { Net liability } \\\hline 0 & & & & & 736055 & 9263945 \\\hline 1 & 9263945 & 555837 & 500000 & 55837 & 680218 & 9319782 \\\hline 2 & 9319782 & 559187 & 500000 & 59187 & 621031 & 9378969 \\\hline 3 & 9378969 & 562738 & 500000 & 62738 & 558293 & 9441707 \\\hline\end{array}$$

• A) 6%
• B) 5%
• C) Variable, as shown in the table it has increased from 5.5837% in Period 1 to 6.2738% in Period 3.
• D) 4%.

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