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HELLO sir, this is from december 2016 CBE practice questions on the official platform.
the explanation is
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) is therefore:
(1 + 0.015228)6 – 1 = 0.0949 or 9.49%
what I cant figure out is where the borrowing cost came from, maybe i’m missing something basic but no value of Borrowing cost is available in the question.
was i the only one who thought the team was lengthy? like my question #32 had analysis plus 3 requirements.