Question

Kingbird, Inc. purchased merchandise with an invoice price of $3200 and credit terms of 2/9, n/30. Assuming a 360-day year, what is the implied annual interest rate inherent in the credit terms?

Answer 1

Answer:

80%

Step-by-step explanation:

Data provided as per the question

Number of days in a year = 360 days

Discount provided = 2%

Total net credit period = 30

The calculation of implied annual interest rate inherent in the credit terms is shown below :-

$Inherent\ in\ the\ credit\ terms\ = \frac{Number\ of\ days\ in\ a\ year}{Total\ net\ credit\ period\ - Remaining\ days}\times 2\%$

$Inherent\ in\ the\ credit\ terms\ = \frac{360}{30 - (30\ -\ 9)}\times 2\%$$Inherent\ in\ the\ credit\ terms\ = \frac{360}{30 - 21}\times 2\%$

$Inherent\ in\ the\ credit\ terms\ = \frac{360}{\ 9}\times 2\%$

$Inherent\ in\ the\ credit\ terms\ = \ 40\times 2\%$

$Inherent\ in\ the\ credit\ terms\ = \ 80\%$

Therefore for computing the inherent in the credit terms we simply applied the above formula.