What is the equivalent annual interest rate for purchase made with discount terms of 1/10/n75?

Question

Quizplus · Accepted Answer

The discount terms of 1/10/n75 means that the buyer can take a 1% discount if payment is made within 10 days, otherwise, the full payment is due within 75 days.

To calculate the equivalent annual interest rate, we can use the formula:

(Discount % / (100% - Discount %)) x (365 / (Full payment days - Discount days))

Plugging in the values, we get:

(1% / (100% - 1%)) x (365 / (75 - 10))
= 1.01% x 5.41
= 5.46%

Therefore, the equivalent annual interest rate is 5.46%, which is closest to option B (5.81%).

What Is the Equivalent Annual Interest Rate for Purchase Made