A firm offers terms of 2.2/7, net 60. What effective annual interest rate does t

Question

A firm offers terms of 2.2/7, 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 3.2/7, 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 2.2/7, 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 2.2/12, 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))

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))

Explanation / Answer

a. Effective annual interest rate = [365 / (60 - 7)] x [0.022 / (1 - 0.022)] = 15.49%

b. Effective annual interest rate = [365 / (60 - 7)] x [0.032 / (1 - 0.032)] = 22.77%

c. Effective annual interest rate = [365 / (75 - 7)] x [0.022 / (1 - 0.022)] = 12.07%

d. Effective annual interest rate = [365 / (60 - 12)] x [0.022 / (1 - 0.022)] = 17.11%

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