Your firm receives an offer from the supplier who provides computer chips used to manufacture cell phones. Due to poor planning, the supplier has an excess amount of chips and is willing to sell $600,000 worth of chips for only $500,000. You already have two years' supply on hand. It would cost you $7,500 today to store the chips until your firm needs them in two years. What implied interest rate would you be earning if you purchased and store the chips?

Question

Quizplus · Accepted Answer

The implied interest rate can be calculated using the formula for the future value of money. The cost today is $500,000 + $7,500 = $507,500, and the future value is $600,000. Using the formula FV = PV * (1 + r)^n, where FV is the future value, PV is the present value, r is the interest rate, and n is the number of periods, we solve for r: $600,000 = $507,500 * (1 + r)^2. Solving for r gives approximately 8.73%.

Your Firm Receives an Offer from the Supplier Who Provides