A firm offers terms of 1.6/10, net 60. What effective annual interest rate does

Question

A firm offers terms of 1.6/10, 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 2.6/10, 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 1.6/10, 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 1.6/15, 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))

Explanation / Answer

a. Effective annual rate:

Interest earn by the firm is for 50 days(60-10).

Effective annual rate = 365 / 50 x 1.6 = 11.68%

b. Effective annual rate:

Interest earn by the firm is for 50 days(60-10).

Effective annual rate = 365 / 50 x 2.6 = 18.98%

c. Effective annual rate:

Interest earn by the firm is for 65 days(75-10).

Effective annual rate = 365 / 65 x 1.6 = 8.98%

d. Effective annual rate:

Interest earn by the firm is for 45 days(60-15).

Effective annual rate = 365 / 45 x 1.6 = 12.98%

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