Simple Annual Interest Rate of Discount question...

gabriellenlewis

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

What is the simple annual interest rate of discount? Please show working, thanks.

Yalda20

Hi there,

There is a formula to use for this:

((d/100-d)* (365/N-D))*100

d=prompt payment discount percentage. N=normal settlement period in day. D=settlement period for early payment in days.

d=2% N=45 days and D=7 days,

100-2=98 45 days -7 days=38 days


((2/98)*(365/38))*100=19.60%

Is this the answer? I hope this helps.