A firm offers terms of 1.6/10, net 30. What effective annual interest rate does

Question

A firm offers terms of 1.6/10, 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 2.6/10, 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 1.6/10, net 45, 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 1.6/15, 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 1.6/10, net 30.

Explanation / Answer

a. Effective interest rate = discount %/(100-discount %) X 360/(FT - DP) = 1.6%/(100%-0%)*365/(30-10) = 29.20%

b. 2.6/10, net 30

Effective interest rate = discount %/(100-discount %) X 360/(FT - DP) = 2.6%/(100%-0%)*365/(30-10) = 47.45%

c.1.6/10, net 45

Effective interest rate = discount %/(100-discount %) X 360/(FT - DP) = 1.6%/(100%-0%)*365/(45-10) = 16.69%

d. 1.6/15, net 30

Effective interest rate = discount %/(100-discount %) X 360/(FT - DP) = 1.6%/(100%-0%)*365/(30-15)= 38.93%

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