Grayson Company purchased merchandise with an invoice price of $2,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?
A) 2%
B) 12%
C) 24%
D) 36%

Question

Grayson Company purchased merchandise with an invoice price of $2,000 and credit terms of 2/10, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?
A) 2%
B) 12%
C) 24% 
D) 36%

Quizplus · Accepted Answer

The discount is 2% for payment within 10 days, which implies an interest rate of 2% for 20 days (the difference between 30 days and 10 days). To find the annual interest rate: (2% / 20 days) * 360 days = 36%.

Grayson Company Purchased Merchandise with an Invoice Price of $2,000