Credit Control - Annual Interest Rates -- Help please!!

rSpurrell

Company's payment terms are 45days. It is offering a discount of 2% for payment within 7 days.

Whats the simple annual interest rate? answer they have is 19.6% but i cant see how they get there?

Any help is appreciated thank you!

BlueJeans

Good Morning rSpurrell

You just have to use the formula given, which is: (d/100-d)x(365/N-D)x100
where:
d= discount percentage given
N=normal payment term
D=discount payment term

so... (2/100-2)x(365/45-7)x100=19.60%