Question

A firm offers terms of 1/10, net 35.

a. What effective annual interest rate does the firm earn when a customer does not take the discount? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

b. What effective annual interest rate does the firm earn if the discount is changed to 2 percent? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

c. What effective annual interest rate does the firm earn if the credit period is increased to 55 days? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

d. What effective annual interest rate does the firm earn if the discount period is increased to 15 days? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Answer #1

Effective annual interest rate = [1 + (Disc.%/100 - Disc.%)]^[365 / (Days Credit Outstanding – Discount Period)] - 1

a. Effective annual interest rate = [1 + (1/99)]^[365 / (35 -
10)] - 1 = 0.1580 or **15.80%**

b. Effective annual interest rate = [1 + (2/98)]^[365 / (35 -
10)] - 1 = 0.3431 or **34.31%**

c. Effective annual interest rate = [1 + (1/99)]^[365 / (55 -
10)] - 1 = 0.0849 or **8.49%**

d. Effective annual interest rate = [1 + (1/99)]^[365 / (35 -
15)] - 1 = 0.2013 or **20.13%**

A firm offers terms of 1.4/10, net 60.
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 and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
b.
What effective annual interest rate does the firm earn if the
terms are changed to 2.4/10, net 60, and the customer does not take
the discount? (Use 365...

A firm offers terms of 1.8/10, 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 and enter your answer as a
percent rounded to 2 decimal places, e.g., 32.16.)
b.
What effective annual interest rate does the firm earn if the
terms are changed to 2.8/10, net 30, and the customer does not take
the discount? (Use 365...

A firm offers terms of 1/10, net 30.
What effective annual interest rate does the firm earn if the
discount period is increased to 15 days?

A firm offers credit terms of 3/10, net 35. What is the
effective annual rate on the credit extended if a customer foregoes
the discount on a $10,000 purchase? Assume that there are 365 days
in one year. (Do not round intermediate calculations. Round the
final answer to 2 decimal places. Omit the % sign in your response.
For example, an answer of 15.39% should be entered as 15.39.)

Come and Go Bank offers your firm a discount interest
loan with an interest rate of 8 percent for up to $17 million, and
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What is the effective annual interest rate on this lending
arrangement? (Do not round intermediate calculations and
enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)
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Cheap Money Bank offers your firm a discount interest
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What is the effective annual interest rate on this lending
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enter your answer as a percent rounded to 2 decimal places, e.g.,
32.16.)

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