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i just want to know the solution procedure and answer for this example…
Entity X borrows at an annual interest rate of 15%.customers are normally required to pay within 45 days.Entity X offers a 1.5% discount if payment is made within ten days.
what is the effective annual cost of offering the settlement discount?The cost of the discount is 1.5/(100-1.5) = 0.015228 over a period of 35 days (45 – 10).
To turn this into an effective annual cost (R), then
1+R = 1.015228^(365/35) = 1.1707
R = 0.1707 or 17.07%
sir why the method of solving this question and that of the example( # 1 from chapter 5 on page 25,opentution notes) is different?
i think they have the same requirement…or not?True. This is one lecture I need to re-record. In the past the examiner used to always accept either the way in the lecture or the way above (which is strictly more correct).
However, now that there are multiple choice questions, the method above is the one to use. (I will re-record the lecture, but given that at most it will be one multiple choice question, it is not a big problem.)
Hi John, having a mental block wat does the ^ mean in the calculation. I just can’t get the answer and as you say possibly only 1 question and don’t want to. Waste too much time on it. Thanks
It is a way of typing “to the power of”
So 4^2 = 4 squared = 16
4^3 = 4 cubed = 64
and so on(The exam paper will show it the proper way (I mean for the first one, 4 with a little 2 high up after it) and you should write it the proper way in the exam. It is just difficult to type it the proper way here 🙂 )
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