CFA Practice Question

There are 120 practice questions for this study session.

CFA Practice Question

If credit terms of "1/10, net 35" are offered, the approximate cost (using 365 days) of not taking the discount and paying at the end of the credit period would be ______.
A. 10.0%
B. 11.05%
C. 15.8%
Explanation: (1 + 0.01/0.99)365/25 - 1 = 15.8%

User Contributed Comments 7

User Comment
mpapwa22 Gosh, i got it right this time round....thank goodness. now can someone explain what it would be if you took the discount?
JCopeland The effective rate you pay if you don't take the discount is 15.8% for the remainder of the payment period. If your company needs short term borrowings for liquidity and the rate which you can borrow is less than the discount, take the discount and borrow. If not, do not take the discount.
ColonelCFA why am I getting 33%? Am I missing a step or are my order of operations off?
c12mintz Net 35 vs net 25???
tichas @Colonel CFA .
Its 1 added to 0.01/0.99 then finish the other part u will get your answer correctly
cnoselli Where does the .99 come from?
myron 1% if paid within 10 days.
You need to log in first to add your comment.