What happens to the implied interest rate on trade credit as the time interval between the discount period and payment period is decreased?
A)The rate declines
B)The rate increases
C)The rate remains constant
D)Impossible to predict without knowing length of discount period

Question

Quizplus · Accepted Answer

The implied interest rate on trade credit increases as the time interval between the discount period and payment period is decreased. This is because there is less time for the buyer to make payment, which increases the risk for the seller. Therefore, the seller may offer less favorable discount terms or increase the interest rate to compensate for this increased risk.

What Happens to the Implied Interest Rate on Trade Credit