An invoice for $12,000 has terms 1/20,n/45.If you take out a loan to take advantage of the discount and the bank uses ordinary interest (i.e.the banker's rule),what is the maximum rate of simple interest that you would be willing to pay?
A)8.08%
B)8.19%
C)14.55%
D)14.75%

Question

Quizplus · Accepted Answer

The discount is 1% of $12,000, which is $120. The discount period is 20 days, and the full payment is due in 45 days. By taking the discount, you save $120 over 25 days (45-20). The equivalent annual interest rate is calculated as ($120/$11,880) * (365/25) = 14.55%.

An Invoice for $12,000 Has Terms 1/20,n/45