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