Suppose you purchase goods on terms of 2/10,net 50.Taking compounding into account,what annual rate of interest is implied by the cash discount? (Assume a year has 365 days.)

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Quizplus · Accepted Answer

The correct answer is B because the annual rate of interest implied by the cash discount is 20.2%. This is calculated by using the formula:r = (1 - d/100) ^ (365/n) - 1where:r is the annual rate of interestd is the cash discountn is the number of days in the discount periodIn this case, the cash discount is 2%, the number of days in the discount period is 10, and the number of days in a year is 365. Plugging these values into the formula, we get:r = (1 - 2/100) ^ (365/10) - 1= (1 - 0.02) ^ (36.5) - 1= 0.202 or 20.2%

Suppose You Purchase Goods on Terms of 2/10,net 50