Answer:
36.72%
Explanation:
credit terms of 2/10, n/30 means the customer must pay within 10 days to obtain a 2% discount, or can make a normal payment in 30 days
Using this formula
effective annual interest rate = Discount %/(1-Discount %) x (360/(Full allowed payment days - Discount days))
First calculate the difference between the payment date for an early payment discount, and due payment date, and divide into 360 days
= 360days / (30 - 10)days
= 18 days
To calculate the interest rate being offered through 2/10 net 30 terms terms, Subtract the discount percentage from 100%
100% - 2% = 98%
Now divide discount percentage 2% by 98%
= 0.0204.
To calculate the effective annual interest rate, multiply the number of days by the interest rate
= 18 × 0.0204
= 36.72%
