Question

Vendor offers you option to pay in 7 days and get a 2.2% discount versus what you have today of pay in 10 days and get a 2% discount. What is the annualized interest rate on this additional discount?

Answer 1

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Ans:

Calculation of annualised interest rate on the additional discount:

Additonal discount for 3 days = 0.2% i.e 0.002

Annualised interest rate of 0.2% = (1.002)365/3 = 1.275%

Hence, Annualised interest rate on additional discount is: 1.275%

Note: If you want to know, how I solved (1.002)365/3, Please mention in comment section. I'll explain the same. It's called "dirty calculation" and involves 4 to 5 steps to solve the same.

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