A firm offers terms of 2.6/7, net 30. a. What effective annual interest rate doe

Question

A firm offers terms of 2.6/7, net 30. a. 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. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual interest rate % b. What effective annual interest rate does the firm earn if the terms are changed to 3.6/7, net 30, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual interest rate % c. What effective annual interest rate does the firm earn if the terms are changed to 2.6/7, net 45, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual interest rate % d. What effective annual interest rate does the firm earn if the terms are changed to 2.6/12, net 30, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Effective annual interest rate %

Explanation / Answer

a. What effective annual interest rate does the firm earn when a customer does not take the discount? Firm offers terms:2.6/7, net 30 Interest Rate = 0.026/0.974 Interest Rate =0.0267 or 2.67 % And the interest is for: 30-7 = 23 days So using the EAR equation , the effective annual intrest rate is EAR= (1+Periodic Rate )m -1 EAR= (1+0.0267)365/23 -1 EAR= 1.5192 -1 EAR= 0.5192 or 51.92% b. What effective annual interest rate does the firm earn if the terms are changed to 3.6/7, net 30, and the customer does not take the discount? Firm offers terms:3.6/7, net 30 Interest Rate = 0.036/0.964 Interest Rate =0.0373 or 3.73% And the interest is for: 30-7 = 23 days So using the EAR equation , the effective annual intrest rate is EAR= (1+Periodic Rate )m -1 EAR= (1+0.0373)365/23 -1 EAR= 1.7881 -1 EAR= 0.7881 or 78.81% c. What effective annual interest rate does the firm earn if the terms are changed to 2.6/7, net 45, and the customer does not take the discount? Firm offers terms:2.6/7, net 45 Interest Rate = 0.026/0.974 Interest Rate =0.0267 or 2.67 % And the interest is for: 45-7 = 38 days So using the EAR equation , the effective annual intrest rate is EAR= (1+Periodic Rate )m -1 EAR= (1+0.0267)365/38 -1 EAR= 1.2880 -1 EAR= 0.2880 or 28.80% d. What effective annual interest rate does the firm earn if the terms are changed to 2.6/12, net 30, and the customer does not take the discount? Firm offers terms:2.6/12, net 30 Interest Rate = 0.026/0.974 Interest Rate =0.0267 or 2.67 % And the interest is for: 30-12 = 18 days So using the EAR equation , the effective annual intrest rate is EAR= (1+Periodic Rate )m -1 EAR= (1+0.0267)365/18 -1 EAR= 1.7063 -1 EAR= 0.7063 or 70.63%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

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