- CFA Exams
- CFA Level I Exam
- Topic 1. Quantitative Methods
- Learning Module 1. Rates and Returns
- Subject 4. Annualized Return
CFA Practice Question
Your company purchased $10,000 worth of inventory on January 2nd on credit. The terms of the sale are 3/15 net 45. What is the effective annual interest rate if you pay the full amount in 45 days?
B. 37.6%
C. 44.9%
A. 28%
B. 37.6%
C. 44.9%
Correct Answer: C
(1 + 0.03/0.97)(365/30) - 1 = 0.4486
User Contributed Comments 5
| User | Comment |
|---|---|
| todolist | cost of trade credit = effective annual interest rate.... |
| troyboy | Why 365/30? I used 365/45 and got 28%?? Help please |
| Skrills | you get a 3 percent discount if you pay within 15 days(i.e. 3/15)... 45-15=30, days of interest |
| Gpcurve | This assumes daily compounding, which would be a quite unusual credit term. |
| jagp | Useful way of solving this on the texas BA II: PV = -9700 FV = 10000 N = 30/365 Compute for I/Y and it will give you the rate |