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Implicit interest rate

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A firm sells its accounts receivables to a factor at a 1.5 percent discount. The average collection period is 1 month. What is the implicit effective annual interest rate on the factoring arrangement? Suppose the average collection period is 1.5 months. How does this affect the implicit effective annual interest rate?

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Solution Summary

The solution explains how to calculate the implicit interest rate in a factoring arrangement

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In order to find the interest rate, we need to know the principal amount, interest amount and the time period. We then use the Simple Interest formula to compute the interest rate.

Let us assume ...

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