A firm offers terms of 2.0/7, net 60. What effective annual interest rate does t

Question

A firm offers terms of 2.0/7, net 60.

  

What effective annual interest rate does the firm earn when a customer does not take the discount?(Use 365 days a year.Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  

   

What effective annual interest rate does the firm earn if the terms are changed to 3/7, net 60, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  

  

What effective annual interest rate does the firm earn if the terms are changed to 2/7, net 75, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  

  

What effective annual interest rate does the firm earn if the terms are changed to 2/12, net 60, and the customer does not take the discount? (Use 365 days a year. Do not round intermediate calculations and round your final answer to 2 decimal places. (e.g., 32.16))

  

rev: 12_07_2012

A firm offers terms of 2.0/7, net 60.

Explanation / Answer

Answer:

a. Effective annual interest rate = (100/(100-2.0))^(365/(60-7))-1 = 14.93% b. Effective annual interest rate = (100/(100-3))^(365/(60-7))-1 = 23.34% c. Effective annual interest rate = (100/(100-2))^(365/(75-7))-1 = 11.45% d. Effective annual interest rate = (100/(100-2))^(365/(60-12))-1 = 16.61%

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