On June 22,Roy's Welding Shop purchased $3,300 worth of goods.The terms of the sale were 1/7,net 21.What is the effective annual rate of interest for the credit period for this sale?

Question

Quizplus · Accepted Answer

Days of credit granted = 21 - 7 = 14 days; Periods per year = 365/14 = 26.071429; Interest rate for 14 days = [0.01 × $3,300]/[(1 - 0.01) × $3,300] = 0.010101; Effective annual rate = (1.010101)^26.071429 - 1 = 29.96 percent

On June 22,Roy's Welding Shop Purchased $3,300 Worth of Goods