hi
can anyone explain for me the Mathematical logic of cost of trade credit?
1+ (discount% / 1 - discount%) ^(365 / #days) - 1
why we add 1 and subtract 1?
hi
can anyone explain for me the Mathematical logic of cost of trade credit?
1+ (discount% / 1 - discount%) ^(365 / #days) - 1
why we add 1 and subtract 1?
You don’t have the parentheses quite right:
{1 + [discount% / (1 − discount%)]} ^ (365 / #days) − 1
We’re compounding [discount % / (1 − discount%)].
This was discussed in two threads, maybe those will help:
http://www.analystforum.com/forums/cfa-forums/cfa-level-i-forum/91349310
http://www.analystforum.com/forums/cfa-forums/cfa-level-i-forum/91326262