With terms of 4/15,net 60,what is the implied interest rate for forgoing a cash discount and paying at the end of the period?
A) 25.63%
B) 28.19%
C) 39.25%
D) 61.15%

Question

Quizplus · Accepted Answer

To calculate the implied interest rate, we need to first find the effective annual interest rate.

Effective annual interest rate = (1 + discount % / (1 - discount %)) ^ (365 / number of days credit is extended) - 1

Here, discount % = 4/15, number of days credit is extended = 60

Plugging in the values, we get:

Effective annual interest rate = (1 + 4/15 / (1 - 4/15)) ^ (365 / 60) - 1
= (1.2667) ^ (6.0833) - 1
= 1.3921 - 1
= 0.3921

Now, we need to convert this to a percentage:

Implied interest rate = 0.3921 * 100
= 39.21%

Therefore, the answer is choice C.

With Terms of 4/15,net 60,what Is the Implied Interest Rate