A vendor offers terms of 1/10,n/30.What is the ANNUAL interest rate the vendor is charging a buyer who does not pay within 10 days? (Assume there are 360 days in the year.

Question

Quizplus · Accepted Answer

The terms 1/10, n/30 mean that a buyer can receive a 1% discount if payment is made within 10 days. If payment is not made within 10 days, the full payment is due within 30 days. 
To find the annual interest rate charged to a buyer who does not pay within 10 days, we need to calculate the cost of not taking the discount. 
The effective annual interest rate can be calculated as (1 - discount percentage) * (360 / terms of credit). 
Plugging in the numbers, we get:
(1 - 0.01) * (360 / 20) = 0.99 * 18 = 17.82%
Therefore, the vendor is charging an annual interest rate of 17.82% to a buyer who does not pay within 10 days. Option C is the closest answer choice.

A Vendor Offers Terms of 1/10,n/30