A merchant receives an invoice for $8000 with terms 2/10,n/60.What is the highest rate of simple interest at which he can afford to borrow in order to take advantage of the discount?
A)14.60%
B)12.17%
C)14.90%
D)12.42%

Question

Quizplus · Accepted Answer

The discount for paying early is 2% of $8000, which is $160. This means the merchant can pay $7840 instead of $8000 if he pays within 10 days. If he borrows $7840 to pay within 10 days and repays the loan in 60 days, he has 50 days to repay. The interest saved by paying early is $160. To find the annual interest rate, we calculate ($160/$7840) * (365/50) = 0.149 or 14.90%.

A Merchant Receives an Invoice for $8000 with Terms 2/10,n/60