Level 4. Credit control Assesmenr 1, task 2

A companys terms of payment are 45 days. It is offering a discount of 2% for payment within 7 days.
The simple annual interest rate of the discount is 19.60%. How did they get it?

Comments

  • BlueJeansBlueJeans LondonPosts: 56Registered
    Formula to calculate the annual interest rate is:

    (d/100-d)x(365/N-D)x100%

    Where
    d=settlement discount percentage
    N=normal settlement period in days
    D=settlement period for early payment in days

    So,
    (2/100-2)x(365/45-7)x100=19.60%

    P.s. Have a look into Osborne tutorial, page 51/52, it explains it quite well. :)
    Believe you can and you're halfway there...
  • genestagenesta Posts: 21Registered
    Thank you!!!

    I do not have Osborne books with me. I am on holiday... ;)
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