Question

A company selis an item on account with credit terms of 2/10,n/20. What is the meaning of these terms? A. 10 percent cash discount may be taken if payment is made immediately a 2 percent discoumt may be taken if paid within 20 days An additional amount equal to 2 percent of the itwoice price most be paid if payment is not received within 10 days, the account is overdoe after 20 days A 2 percent cash discount may be taken if payment is made within 10 days of the imoice date: othorwise the full amaunt is due within 20 days. A 10 percent cash discount may be taken if payment is made within 2 days of the invaice date, otherwise the full aanount is due in 20 days

Answer 1

The credit terms 2/10, n/20 allow a 2 percent discount if payment is made within 10 days; otherwise, the full amount is due in 20 days. Credit cards provide short-term loans with potential late fees. The present value of bonds can change with interest rate fluctuations, exemplifying interest rate risk.

Step-by-step explanation:

The credit terms 2/10, n/20 mean that the buyer can take a 2 percent cash discount if the payment is made within 10 days after the invoice date. If the discount is not taken, the full amount is due within 20 days. These terms are used by companies to encourage early payment, improving their cash flow. It does not indicate a 10 percent discount at any point. Additionally, it's important to understand that if the payment isn't made within the agreed terms, the account may be considered overdue, which can result in additional charges or penalties depending on the company's policies.

A credit card functions as a short-term loan where the credit card company immediately transfers money from its checking account to the seller, and at the end of the month, the user owes the money to the credit card company. Late payments on such credit cards can incur initial late fees and additional charges for each day the payment remains unpaid, also affecting the user's credit score.

Bonds represent another form of financial obligations, where the value of a bond in the present can be calculated by discounting the future payments at a certain discount rate. Interest rate risk arises if the market rates change after purchasing a bond, affecting its current value and the opportunity cost related to receiving lower interest payments compared to newer issues at higher rates.