2. You are doing some comparison shopping. Five stores offer the product you want at basically the same price. (a) Compute annual and effective interest rates implicit in each credit term. (b) Which of the stores offers the best credit terms if you plan on taking the discount? (c) Which of the stores offers the best credit terms if you plan on foregoing the discount? Store Credit terms A 1/10, net 20 2/10, net 20 2/5, net 30 1/15, net 45 2/15, net 30 B D E (a) St Credit terms Annual interest rate A 1/10, net 20 (1/99) *(365/10=36.87% B 2/10, net 20 (2/98) *(365/10) = 74.49 C 2/5, net 30 (2/98) *(365/25=29.8 D (1/99)*(365/30)=12.29 1/15, net 45 E (2/98) *(365/15)=49.66 2/15, net 30 Effective annual interest rate EAIR = (1 + 36.87%)/(36.5) (365) = 44.32% EAIR = (1 + 74.49%)/(36.5) (365) = 109.05% EAIR = (1 +29.8%)/(14.6) (14.6) = 34.31% EAIR = (1 + 12.29%)/(12.17) (12.17) = 13.00% EAIR = ((1 + 49.66%)/(24.33) (24.33) = 63.49% (b) Store E offers the best credit terms if you plan on taking the discount Store D offers the best credit terms if you plan on foregoing the discount