Equivalent annual interest rate percentage

Miss Dazy

This area always trips me up, i would be grateful for any help.

Smith indutries offer debtor terms of 75 days and plan to offer 4% discount for settlement in 10 days.

I am asked to find the Equivalent annual interest rate percentage.

Is there a calculation thats easy to remember for this?

thanks in advance

sdv

Miss Dazy wrote: »

This area always trips me up, i would be grateful for any help.

Smith indutries offer debtor terms of 75 days and plan to offer 4% discount for settlement in 10 days.

I am asked to find the Equivalent annual interest rate percentage.

Is there a calculation thats easy to remember for this?

thanks in advance

This is a subject with a lot of contention on this website. search for it and you will find the exchange of posts hilarious.

No doubt for what I am about to do, it is likely to arouse a lot of passion

If you want to be precise, there is a formula to work out. No doubt some will post it here and fully explain it

but for a rough idea; this is what I would do. The answer will not be materially different from the precise answer

say the debt is £1000

to get paid early you give a discount of 4% = £40

£40 is the cost for 65days (75 less 10)

annual cost therefore would be £40/65 x 365 =£225

to work out annual percentage cost = £225/(1000-40) x100 = 23.44%