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    Gramble Corporation: Compute the effective rate on Gramble's note

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    Gramble Corp. uses trade credit on terms of 2/15 net 40.

    a. Compute the nominal annual cost of not taking the discount.

    b. Compute the effective annual cost of not taking the discount.

    C. Gramble Corp. has a promissory note at the bank for $150,000 on which it pays 9 percent interest. The bank requires Gramble to maintain a compensating balance of $10,000. Compute the effective rate on Gramble's note.

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    Solution Preview

    a) Cost per period = 2/(100-2) = 2.04%
    Number of periods = 365/(40-15) ...

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