Find equivalent annual rate offend for purchase discounts. The terms of sale “2/10, net/30” mean that the buyer can take a discount of 2% from gross invoice price by paying the invoice within 10 days: otherwise, the buyer must pa the full amount within 30 days.
a. Write an expression for the implicit annual rate of interest being offered by viewing the entire discount as interest for funds received sooner rather than later. (Note that by not taking the discount, the buyer borrows 9r/0 of the gross invoice price for 20 days.)
b. The tables at the back of the book do not permit the exact evaluation of the expression derived in part a. The rate of interest implied is 44i9 per year. Use the tables to convince yourself that this astounding (to some) answer must be close to correct.