Lyon\'s Furniture is advertising a \"Ho! Ho! Hold the Payments for 2 Full Years!

Question

Lyon's Furniture is advertising a "Ho! Ho! Hold the Payments for 2 Full Years!" sale. Lyon's advance factors all of its receivables to Citibank. Citibank has credit checking terminals in all of the company's stores. Once a customer is approved, Citibank assumes the liability of collecting the receivable from the customer (in 2 years) and immediately advances Lyon's a percentage of the sale price. If Citibank wants to earn 16% on invested funds to cover the cost of capital and default risk, then what percentage of the purchase price will it advance to Lyon's? What percentage of the purchase price will Citibank advance to Lyon's? % (Round to two decimal places.)

Explanation / Answer

Answer: =(1+16%)^2-1

=34.56%

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