Trade Discount Calculation

CFA General
#1

2/20 net 45 - what’s the annual discount?

#2

My answer would be - wrong forum?

#3

Think I should try LI? I think that was on the LI…

#4

Yeah, it’s LI stuff

#5

34.3% (1/0.98)^(365/(45-20)) the formula reverses the 2% discount and then annualizes the increase. So instead of saying you get a 2% discount if you pay by day 20, you assume that the discounted price is the “real price” and that you’ll have to pay 1/0.98-1 percent interest if you pay on day 40. The answer is the equivalent annualized interest rate, as a compounded rate.

#6

34.3% (1/0.98)^(365/(45-20)) the formula reverses the 2% discount and then annualizes the increase. So instead of saying you get a 2% discount if you pay by day 20, you assume that the discounted price is the “real price” and that you’ll have to pay 1/0.98-1 percent interest if you pay on day 40. The answer is the equivalent annualized interest rate, as a compounded rate.