Question

A company offers the following credit policy: 5/10, net 60. What is your annual percentage rate?

Answer 1

Answer:- Annual Percentage Rate = 36.50%

Explanation:-

The terms 5/10 net 60 means that the credit period is 60 days, however, a discount of 5% will be provided if the payment is made within 10 days.

Now,

APR or Annual Percentage Rate = (365 / Extra credit period) x Discount rate

Extra credit period = Extra days taken to pay if discount is foregone = Payment date - Discount days

So,

Discount rate = 5% = 0.05

Extra credit period = 60 - 10 = 50

APR = (365 / 50) x 0.05

= 7.3 x 0.05

= 0.365 or 36.50%

answered by: anonymous