ACME Inc.,has credit terms of 2/10 net 60.Customers should take the discount and pay in 10 days if they CANNOT earn more than ________ (APR)or ________ (EAR)on their investments.
A)14.90% APR or 15.89% EAR
B)15.89% APR or 14.90% EAR
C)12.42% APR or 13.08% EAR
D)13.08% APR or 12.42% EAR

Question

Quizplus · Accepted Answer

The correct choice is 14.90% APR or 15.89% EAR. This is because the discount for early payment (2% in this case) over the period of 10 days translates to a much higher annual rate due to the compounding effect. The EAR (Effective Annual Rate) takes into account the effect of compounding, making it higher than the APR (Annual Percentage Rate) which does not. The calculation for these rates based on the given terms shows that customers should take the discount if they cannot earn more than these rates on their investments.

ACME Inc,Has Credit Terms of 2/10 Net 60