A firm offers terms of 1.8/10, net 30. What effective annual interest rate does

Question

A firm offers terms of 1.8/10, net 30.

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 2.8/10, net 30, 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 1.8/10, 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 1.8/15, net 30, 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))

A firm offers terms of 1.8/10, net 30.

Explanation / Answer

a) EAR = (1+ 0.018)^(365/20) - 1 = 38.48%

b)EAR = (1+ 0.028)^(365/20) - 1 = 65.53%

c) EAR = (1+ 0.018)^(365/50) - 1 = 13.91%

d) EAR = (1+ 0.018)^(365/15) - 1 = 54.36%

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