Electronics and More offers credit terms of 1/5,net 20.What is the effective annual rate on a $12,000 purchase if you forgo the discount?
A)0 percent
B)8.59 percent
C)14.99 percent
D)27.71 percent
E)32.58 percent

Question

Quizplus · Accepted Answer

Days in period = 20 - 5 = 15 days; Periods per year = 365/15 = 24.333333; Interest rate for 15 days = [0.01 × $12,000]/[(1 - 0.01) × $12,000] = 0.010101; Effective annual rate = (1.010101)^24.333333 - 1 = 27.71 percent

Electronics and More Offers Credit Terms of 1/5,net 20