a). EAR = [1 + {Discount% / (100 - Discount%)}][365 / (Credit Period - Discount Period)] - 1
= [1 + {0.01 / (1 - 0.01)}][365 / (30 - 10)] - 1
= [1 + 0.0101][365 / 20] - 1
= 1.2013 - 1 = 0.2013, or 20.13%
b). EAR = [1 + {Discount% / (100 - Discount%)}][365 / (Credit Period - Discount Period)] - 1
= [1 + {0.02 / (1 - 0.02)}][365 / (30 - 10)] - 1
= [1 + 0.0204][365 / 20] - 1
= 1.4459 - 1 = 0.4459, or 44.59%
c). EAR = [1 + {Discount% / (100 - Discount%)}][365 / (Credit Period - Discount Period)] - 1
= [1 + {0.01 / (1 - 0.01)}][365 / (40 - 10)] - 1
= [1 + 0.0101][365 / 30] - 1
= 1.1301 - 1 = 0.1301, or 13.01%
d). EAR = [1 + {Discount% / (100 - Discount%)}][365 / (Credit Period - Discount Period)] - 1
= [1 + {0.01 / (1 - 0.01)}][365 / (30 - 20)] - 1
= [1 + 0.0101][365 / 10] - 1
= 1.4432 - 1 = 0.4432, or 44.32%
A firm offers terms of 1/10, net 30. a. What effective annual interest rate does the...
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