1. Calculation/short answer (4 Marks)

FINCORP has two debtors who each make a $10, 000 purchase. Debtor 1 pays their account in 10 days, while debtor 2 pays in 30 days.

1. Compare the dollar value of payments made by the two debtors

2. In simple terms, what nominal annual interest rate is debtor 2 incurring for the benefit of delaying payment?

Note: base your answer on the following logic. If a borrower pays 3% for a 30-day loan, we could express the nominal annual rate as roughly 36.5% i.e. 3%36530=36.5%

3. State one (1) disadvantage to FINCORP of offering trade credit (apart from what you demonstrated in part a).