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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?

  • 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 percent.

  2. The credit period is increased to 40 days.

  3. The discount period is decreased to 20 days.

  4. What is the EAR for each scenario?

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