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On July 15th, you purchased $10,000 worth of goods. The terms of the sale were 1/6,...

On July 15th, you purchased $10,000 worth of goods. The terms of the sale were 1/6, net 46. What is the effective annual rate of interest for the credit period for this sale?

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Answer #1

"1/6 net 46" mean the customer must pay within 6 days to obtain a 1% discount, or can make a normal payment in 46 days.

I am assuming a 365 day year (and not 360 day year)

Cost of Credit = 0.092 = 9.22%

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If I were to assume a 360 day period, cost of credit would be 9.09%

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