interest assumed on a noninterest-bearing note, including discounted or zero-coupon znstruments, or on a note with an unrealistically low interest rate. It applies to both notes payable and notes receivable. The imputed interest rate is the one the borrower would normally incur in a similar transaction. Assume a $10,000 one-year noninterestbearing note payable was issued on 1/1/2000. It would be unrealistic to believe that someone would take a one-year note without interest. Thus, interest must be imputed, to arrive at the present value of the note on 1/1/2000. If we use a 10% imputed interest rate, the present value of the note is $9091 ($10,000/1.10). Hence, the note consists of a principal portion of $9091 and an imputed interest portion of $909.