CFA Practice Question
Assuming trade credit terms of 2/10 net 40 and paying the supplier on the 30th day creates an annualized cost of trade credit (%) closest to ______.
A. 28.8
B. 44.6
C. 59.2
Explanation: Cost of trade credit = {[ 1 + Discount/(1 - Discount)] (365/Days beyond discount period) } -1
= {1 + (0.02 / (1 - 0.02)}(365/ (30 -10)) - 1 = 44.6%
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