What happens to the implied interest rate on trade credit as the time interval between the discount period and payment period is decreased?
A) The rate declines.
B) The rate increases.
C) The rate remains constant.
D) It is impossible to predict without knowing length of discount period.

Question

Quizplus · Accepted Answer

The implied interest rate on trade credit, also known as the cost of not taking the discount, increases as the time interval between the discount period and payment period is decreased. This is because the discount period represents a shorter period of time for which the company receives earlier payment, meaning that the cost of not taking the discount is higher as a percentage of the invoice amount for a shorter period of time.

What Happens to the Implied Interest Rate on Trade Credit