- CFA Exams
- CFA Exam: Level I 2021
- Study Session 11. Corporate Finance (2)
- Reading 35. Working Capital Management
- Subject 4. Evaluating Accounts Receivable, Inventory and Accounts Payable Management

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**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**
6

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 |

walterli |
this is the exactly same example of the reading. |