What effective annual interest rate does the firm earn when a customer does not

Question

What effective annual interest rate does the firm earn when a customer does not take the discount? (Do not include the percent sign (%). Round your answer 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? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

What effective annual interest rate does the firm earn if the credit period is increased to 55 days? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

What effective annual interest rate does the firm earn if the discount period is increased to 15 days? (Do not include the percent sign (%). Round your answer to 2 decimal places (e.g., 32.16).)

Explanation / Answer

Cost of trade credit: = (1+D÷(1-D))^(365÷n)-1 D is discount rate n is Number of days after discount period 1) 15.80% (1+0.01/(1-0.01))^(365/25)-1 2) 34.31% (1+0.02/(1-0.02))^(365/25)-1 3) 8.49% (1+0.01/(1-0.01))^(365/45)-1 4) 20.13% (1+0.01/(1-0.01))^(365/20)-1

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