What effective annual interest rate does the firm earn when a customer does not

Question

What effective annual interest rate does the firm earn when a customer does not take the discount?(Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

What effective annual interest rate does the firm earn if the discount is changed to 3 percent? (Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

What effective annual interest rate does the firm earn if the credit period is increased to 70 days? (Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

What effective annual interest rate does the firm earn if the discount period is increased to 20 days?(Enter your answer as a percentage rounded to 2 decimal places (e.g., 32.16).)

Explanation / Answer

1) Effective rate = (1 + 2/98)^(365/35)- 1 = 23.45%

2) Effective rate = (1 + 3/97)^(365/35)- 1 = 37.39%

3) Effective rate = (1 + 2/98)^(365/55)- 1 =14.35%

4) Effective rate = (1 + 2/98)^(365/30)- 1 =27.86%

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