Question

A cash discount of 2/10, N/30 (2 percent cash discount if payment is made in 10 days, with the gross amount due in 30 days) is the equivalent of what approximate interest rate?

1) 54
2) 45
3) 36
4) 30
5) 18

Answer 1

A cash discount of 2/10, N/30 is approximately equivalent to a 36% interest rate.

Step-by-step explanation:

A cash discount of 2/10, N/30 is the equivalent of approximately 36% interest rate.

To calculate the interest rate, we can use the formula:

Interest Rate = (Discount % / (1 - Discount %)) * (365 / (Net Due Days - Discount Days))

Plugging in the values from the given cash discount:

Interest Rate = (2/100 / (1 - 2/100)) * (365 / (30 - 10))

Simplifying the equation:

Interest Rate = (2/98) * (365/20)

Interest Rate ≈ 0.0367

Interest Rate ≈ 36%