Windsor, Inc. purchased merchandise with an invoice price of $2300 and credit terms of 3/12, n/30....
Windsor, Inc. purchased merchandise with an invoice price of $2300 and credit terms of 3/12, n/30. Assuming a 360 day year, what is the implied annual interest rate inherent in the credit terms?
Homework Answers
Ans. 54%
company saves $69 (i.e., $2,300 x .03) if they pay within 10
days after sale.
Also, the company's maximum credit limit is 30 days.
Thus, the company saves $69 if it pays 20 days before the final due
date.
Now Interest = Principal x Interest rate x Time
$69 = $2,300 x Interest rate x (30-10)/360
Interest rate = [360/(30-10)] x $69/$2,300 = 0.54 or 54%
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