A retailer buys goods from a supplier for $8000.The goods cost the supplier $7750.The retailer signs a non-interest bearing promissory note due in 120 days.After 10 days,the supplier sells the note to a bank that discounts the note using a simple interest rate of 10%.What rate of return,r,did the supplier earn over the 10 days?

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Quizplus · Accepted Answer

The supplier earned a rate of return of 4.6% over the 10 days. This is calculated by first determining the amount the bank pays for the note, which involves discounting the $8000 using a 10% annual rate for the remaining 110 days (120 days - 10 days). The discount amount is $8000 * 10% * (110/365) = $241.10. The bank pays $8000 - $241.10 = $7758.90. The supplier's profit is $7758.90 - $7750 = $8.90. The rate of return over 10 days is ($8.90/$7750) * 100 = 0.1148%, which when annualized (365/10) gives approximately 4.6%.

A Retailer Buys Goods from a Supplier for $8000