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Scrimpy Co buys materials from Frugal Enterprises. Frugal offers discount terms of 2%discount for payment within 10 days or full payment within 30 days.Assuming a 360-day year, what is the annual percentage cost associated with Scrimpy’s failure to take advantage of the discount offered by Frugal?
The answer is 36.7%
how to get answer? I can’t get it
The interest over 20 days is 2/98.
Therefore the annual interest is 2/98 x 360/20 = 0.367 (or 36.7%).
However I would be interested to know where you found this question, because strictly the annual interest should be calculated as (1 + 2/98) ^ (360/20) = 0.439 (or 42.9%).
Have you not watched my free lectures on this, because I explain the reasoning behind it in my lectures.
Thank you for your reply.
Yes. I did. I watched the video.
I did calculated the APR is 43.9%. Just wonder why will have alternative way to calculate.
Isn’t mean the 36.7% is wrong?
Yes – strictly the 36.7% is wrong and the answer should be 43.9%
That is why I am interested to know where you found the question 🙂
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