Find equivalent annual rate offered for purchase discounts. The terms of sale "2/10.

net/30" mean that the buyer can take a discount of 2 percent from gross invoke price by pay- ing the invoice within 10 days: otherwise, the buyer must pay the full amount within 30 days.

a. W rite an expression for the implied annual rate of interest being offered by \ iew ing the entire discount as interest for funds received sooner rather than later. (Note that by not taking the discount, the buyer borrows 98 percent of the gross invoice price for 20 days. |

b. The tables at the back of the book do not permit the exact evaluation of the expression derived in part

a. The rate of interest implied is 44.59 percent per year. Use the tables to convince yourself that this astounding (to some) answer must be close to correct.

PROBLEMS AND CASES Problems 30 through 44 involve using future value and present value techniques, including perpetuities, to solve a variety of realistic problems. We give no hints as to the specific calculation with the problems.