5. 5.

Terms of sale [LO 20.1] A firm offers terms of 1/10, net 30. What effective annual interest rate does the firm earn when a customer does not take the discount? Without doing any calculations, explain what will happen to this effective rate if:

1. The discount is changed to 2 per cent.

2. The credit period is increased to 45 days.

3. The discount period is increased to 14 days.