Question

C. Cost of money.

9. On October 8 an invoice for $ 1400, has terms 2/10, n / 30. The bank, if you use the line of credit, charges you 1% per month, or per fraction of the month. I pay on October 18 to qualify for the discount benefit but I use the credit line. How much did you save? Use the simple interest method to calculate your savings.

Answer 1

On Octorber 8, Invoice amount = $ 1400

Discount terms = 2/10, n/30 i.e., 2% discount if paid in 10 days, else pay in 30 days

You paid on Oct 18(within 10 days) using line o credit and received 2% discount.

Discount amount = $1400*2% = $28

- Line of Credit charges 1% per month or fraction of month, since, if we havn't taken the discount on Oct 18 by borrowing, we would have to pay Invoice amount by next 20 days. Thus, we will calcaute the interest rate on borrowed amount for 20 days only.

Interest amount = $ 1400*1% per month*(20 days/30days)

= $ 9.33

Amount saved = $ 28-$9.33

= $ 18.67