A merchant receives an invoice for $25,000 with terms 4/15,n/60.What is the highest simple interest rate at which he can afford to borrow in order to take advantage of the discount?
A)24.3%
B)25.3%
C)32.4%
D)33.8%

Question

Quizplus · Accepted Answer

The merchant can save 4% by paying the invoice 45 days early (60 days - 15 days = 45 days). The 4% savings on $25,000 is $1,000. To find the equivalent annual interest rate, divide the savings by the product of the principal and the time period in years (45/365). This gives an interest rate of 33.8%.

A Merchant Receives an Invoice for $25,000 with Terms 4/15,n/60