Question

A retailer owes a wholesaler $400,000 due in 45 days. If the payment is 15 days late, there is a 1% penalty charge. Since the bill isn't due immediately, the retailer can invest the $400,000 in a certificate of deposit and make money on the interest. The retailer has two options: a 45-day certificate of deposit (CD) earning 9% per year simple interest or a 60-day certificate earning 10% per year simple interest.

How much interest would the retailer earn? Use 360 days in a year. (Round your answers to the nearest cent.)

45-day certificate$ 60-day certificate$

If the retailer opts for the 60-day certificate of deposit, he will be late on his payment to the wholesaler. How much will the penalty be if he is late on his payment to the wholesaler?

$

How much will the retailer make in total if he opts for the 60-day certificate and has to pay the penalty out of the proceeds of the interest earned on the CD? (Round your answer to the nearest cent.)

$

Is it better to take the 45-day certificate and pay on time or take the 60-day certificate and pay late with the penalty?

The 45-day certificate is better.The 60-day certificate is better.    They are equivalent.

Answer 1