Level 4. Credit control Assesmenr 1, task 2

genesta

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?

BlueJeans

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.

genesta

Thank you!!!

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