What is the effective annual rate of trade credit if the trade credit terms are 1/10,net 30?
A) 13.01%
B) 18.00%
C) 18.43%
D) 20.13%

Question

Quizplus · Accepted Answer

The effective annual rate (EAR) of trade credit can be calculated using the formula: EAR = (1 + discount / (1 - discount))^(365 / (net days - discount days)) - 1. For terms 1/10, net 30, the discount is 1%, the discount period is 10 days, and the net period is 30 days. Plugging these into the formula gives EAR = (1 + 0.01 / (1 - 0.01))^(365 / (30 - 10)) - 1 = 20.13%.

What Is the Effective Annual Rate of Trade Credit If