Question

credit terms
as manager of fly-by-night airlines, you decide to allow customers 90 days to pay their Bill's. to encourage early payments, though you allow them to reduce their Bill's by 1.8 % if they pay within the first 52 days. at what implied effective annual interest rate are you loaning money to your customers? what if you extend the discount to 95 days and allow full payment up to 180 days?

Answer 1

Assumingly the customer pay on 52nd day, they will get discount of 1.8% by paying 48 days (90-52) ahead.
Gross payment	100
Discount	1.80%	1.8
Net payment on 52nd day	98.20
Effective annual rate=	(1.80/98.20)*365/(90-52)
Effective annual rate=	17.61%
Assumingly the customer pay on 95th day, they will get discount of 1.8% by paying 85 days (180-95) ahead.
Gross payment	100
Discount	1.80%	1.8
Net payment on 95th day	98.20
Effective annual rate=	(1.80/98.20)*365/(180-95)
Effective annual rate=	7.87%