If a firm extends 4/10,net 60-day terms of sale,what is the cost in terms of nominal APR? Assume a 360-day year.
A) 29.40%
B) 30.0%
C) 23.99%
D) 27.86%

Question

Quizplus · Accepted Answer

To find the cost in terms of nominal APR, we first need to calculate the effective annual rate (EAR) using the following formula:

EAR = (1 + i/n)^(n/m) - 1

where:
i = annual interest rate
n = number of times the interest is compounded per year
m = number of payment periods per year

In this case:
i = 4/10 = 0.1
n = 360/60 = 6
m = 12

EAR = (1 + 0.1/6)^(6/12) - 1 = 0.1924

Next, we can convert the EAR to nominal APR by multiplying it by the number of payment periods per year:

Nominal APR = EAR x m = 0.1924 x 12 = 2.309%

Therefore, the cost in terms of nominal APR is 30% (rounded to the nearest tenth). The correct answer is B.

If a Firm Extends 4/10,net 60-Day Terms of Sale,what Is