Problem

Terms of Sale. A firm offers terms of 2/15, net 40. What effective annual interest rate do...

Terms of Sale. A firm offers terms of 2/15, net 40. What effective annual interest rate does the firm earn when a customer does not take the discount? Without doing any calculations, explain what will happen to this effective rate if:

a. The discount is changed to 3 percent.


b. The credit period is increased to 60 days.


c. The discount period is decreased to 20 days.


d. What is the EAR for each scenario?

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