[Gerald]

Swap Co is due to receive goods costing $2,500. The terms of trade state that payment must be received within
three months. However, a discount of 1·5% will be given for payment within one month.
Which of the following is the annual percentage cost of ignoring the discount and paying in three months?
A=6·23%
B=9·34%
C=6·14%
D=9·49%
The correct response is as follows:
D
If the discount is accepted, the company must pay $2,462·50 at the end of one month.
Alternatively, the company can effectively borrow the $2,462·50 for an additional two months at a cost of
$37·50.
The two-month rate of interest is therefore 37·50/2,462·5 x 100 = 1·5228%
The annual equivalent rate (AER) = (1 + 0·015228)^6 – 1 = 0·0949 or 9·49%
My Question:
I want o know how the six (6) in the last sentence came about.

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