Oregon Saw Mills 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 discount is 2% for paying 50 days early (60-10). The effective annual rate (EAR) can be calculated using the formula for EAR from the discount rate and period, which results in approximately 15.89%. The annual percentage rate (APR) equivalent is approximately 14.90%.