Homework Answers
Answer-
Effective interest rate = discount %/(100-discount %) X 360/(FT - DP)
a) calculate the effective interest rate of failing to take the discount,
1. For each of the following purchases,
(1) $500, 2/10, net 30
Effective interest rate = discount %/(100-discount %) X 360/(FT - DP)
Effective interest rate = 2/(100-2) X 360/(30-10)
Effective interest rate = 36.73%
(2) $3,500, 4/20, net 30
Effective interest rate = discount %/(100-discount %) X 360/(FT - DP)
Effective interest rate = 4/(100-4) X 360/(30-20)
Effective interest rate = 150.00%
and (b) determine the date and amount paid if the discount is taken . Assume that the invoice date is March 10 and that there are 30days in a month.
(1) $500, 2/10, net 30
Date of Payment = March 20
Amount Paid = 500 - 2%*500 = $ 490
(2) $3,500, 4/20, net 30
Date of Payment = March 30
Amount Paid = 3500 - 4%*3500 = $ 3,360
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