Question

OnJuly 15^th, you purchased $10,000 worth of goods. The terms of the sale were 1/9, net 46. What is the effective annual rate of interest for the credit period for this sale?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

Answer 1

Credit Term of Sale = 1/9, net 46

Discount Rate = 1%
Discount Period = 9 days
Credit Period = 46 days

Effective Annual Rate = [1 + Discount Rate / (1 - Discount Rate)]^[365 / (Credit Period - Discount Period)] - 1
Effective Annual Rate = [1 + 0.01 / (1 - 0.01)]^[365 / (46 - 9)] - 1
Effective Annual Rate = [1 + 0.010101]^[365 / 37] - 1
Effective Annual Rate = 1.010101^9.864865 - 1
Effective Annual Rate = 1.1042 - 1
Effective Annual Rate = 0.1042 or 10.42%

So, the effective annual rate of interest for the credit period for this sale is 10.42%