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Vlad1618 [11]
3 years ago
15

A Chinese exporter sells $200,000 of toys to a French importer. The Chinese exporter requires the French importer to obtain a le

tter of credit. When the bank accepts the draft, the exporter discounts the 90-day note at a 4 percent discount. What does the exporter's true effective annual financing cost?
Business
1 answer:
GuDViN [60]3 years ago
4 0

Answer:

0.0416483 or 4.16%

Explanation:

Annual percentage rate, APR = 4%

Value of toys sold = $200,000

Note period = 90 day

N = 365 ÷ 90

= $200,000 × [1 - (0.04 × 90/360)]

= $198,000

Effective annual financing cost:

=(\frac{Value\ of\ toys\ sold}{Calculated\ value} )^{\frac{365}{90} }-1

=(\frac{200,000}{198,000} )^{\frac{365}{90} }-1

= 1.0416483 - 1

= 0.0416483 or 4.16%

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