A firm sells its $1,020,000 receivables to a factor for $1,009,800. The average

Question

A firm sells its $1,020,000 receivables to a factor for $1,009,800. The average collection period is 1 month. What is the effective annual rate on this arrangement? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

A firm sells its $1,020,000 receivables to a factor for $1,009,800. The average collection period is 1 month. What is the effective annual rate on this arrangement? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.

Explanation / Answer

effective annual rate = ( 1 + interest rate per month)12 - 1

interest rate per month = (1020000 - 1009800) / 1009800 = 1.0101%

effective annual rate = ( 1 + 0.0101)12 -1 = 12.82%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.