What effective annual interest rate does the firm earn when a customer does not
ID: 2713115 • Letter: W
Question
What effective annual interest rate does the firm earn when a customer does not take the discount? (Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
What effective annual interest rate does the firm earn if the discount is changed to 2 percent? (Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
What effective annual interest rate does the firm earn if the credit period is increased to 60 days? (Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
What effective annual interest rate does the firm earn if the discount period is increased to 30 days? (Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)
A firm offers terms of 1/25, net 40. (Enter your answers as directed, but do not round intermediate calculations.)Explanation / Answer
Effective interest rate:
= (1+D÷(1-D))^(365÷n)-1
D is discount rate
n is Number of days after discount period
1)
= (1+1%÷(1-1%))^(365÷15)-1
= 27.71%
2)
= (1+2%÷(1-2%))^(365÷15)-1
= 63.49%
3)
= (1+1%÷(1-1%))^(365÷35)-1
= 11.05%
4)
= (1+1%÷(1-1%))^(365÷10)-1
= 44.32%
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