A firm offers terms of 2.8/7, net 60. What effective annual interest rate does t

Question

A firm offers terms of 2.8/7, net 60.

What effective annual interest rate does the firm earn when a customer does not take the discount? (Use 365 days a year.Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What effective annual interest rate does the firm earn if the terms are changed to 3.8/7, net 60, and the customer does not take the discount?  (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What effective annual interest rate does the firm earn if the terms are changed to 2.8/7, net 90, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

What effective annual interest rate does the firm earn if the terms are changed to 2.8/12, net 60, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

A firm offers terms of 2.8/7, net 60.

Explanation / Answer

a. Effective annual interest = (100/(100-2.8))^(365/(60-7))-1 = 21.60%

b. Effective annual interest = (100/(100-3.8))^(365/(60-7))-1 = 30.58%

c. Effective annual interest = (100/(100-2.8))^(365/(90-7))-1 = 13.30%

d. Effective annual interest = (100/(100-2.8))^(365/(60-12))-1 = 24.10%

Hope this helped ! Let me know in case of any queries.

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