CFA Practice Question

There are 120 practice questions for this study session.

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?

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
You need to log in first to add your comment.