A firm offers terms of 1.2/10, net 30. What effective annual interest rate does

Question

A firm offers terms of 1.2/10, 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 2.2/10, 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 1.2/10, 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 1.2/15, 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))

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 = (100/(100-1.2))^(365/(30-10))-1 = 24.65%

b. Effective annual interest rate = (100/(100-2.2))^(365/(30-10))-1 = 50.08%

c. Effective annual interest rate = (100/(100-1.2))^(365/(45-10))-1 = 13.42%

d. Effective annual interest rate = (100/(100-1.2))^(365/(30-15))-1 = 34.15%

Hope this helped ! Let me know in case of any queries.

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