What effective annual interest rate does the firm earn when a customer does not
ID: 2714848 • Letter: W
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 80 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).)
A firm offers terms of 2/15, net 60. (Enter your answers as directed, but do not round intermediate calculations.)Explanation / Answer
formula - (360 / Discount Days) x (Disc % / 1 - Disc %) = A.P.R.
converted to EAR for true cost.
(1) As it states 2/15 net 60 are 45 Discount Days, 360 / 45 = 8 Discount periods / year.
So 8 X (.02 / .98) = 8 X 16.33% APR
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