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Effective annual interest of trade discounts

Trade Credit Rates - What effect will the following actions have on the implicit interest rate charged to customers that pass up the cash discount? State the effective annual interest rate for these terms.

Discuss why a buyer would want to maybe borrow money to be able to take advantage of the cash discount terms rather than wait and pay the non discount invoice total when net is due.

a) the terms are changed to 1/10, net 20
b) the terms are changed to 1/10, net 30
c) the terms are changed to 1/5, net 10
d) the terms are changed to 2/10 Dec 10 net Dec 30, anticipation ½% per month
e) net 30

Solution Preview

Annual Percentage Rate (APR) is an expression of the effective interest rate that will be paid on a loan, taking into account one-time fees and standardizing the way the rate is expressed. In other words the APR is the total cost of credit to the consumer expressed as an annual percentage of the amount of credit granted. APR is ...

Solution Summary

This explain the computation of effective annual interest of trade discounts with examples

$2.19