FM27 9 - 1/99 = 1.01 on discount if pay in 15 days...

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c. Add-on: Interest = Funds needed(r d ). Loan = Funds needed(1 + r d ). PMT = Loan/12. Assume you borrowed $100. Then, Loan = $100(1.06) = $106. PMT = $106/12 = $8.8333. $100 = = + 12 1 t t d ) r 1 ( 8333 . 8 $ . Enter N = 12, PV = 100, PMT = -8.8333, FV = 0, and press I to get I = 0.908032% = r d . This is a monthly periodic rate, so the effective annual rate = (1.00908032) 12 - 1 = 0.1146 = 11.46%. d. Trade credit:
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Unformatted text preview: 1/99 = 1.01% on discount if pay in 15 days, otherwise pay 45 days later. So, get 60 - 15 = 45 days of credit at a cost of 1/99 = 1.01%. There are 360/45 = 8 periods, so the effective cost rate is: (1 + 1/99) 8- 1 = (1.0101) 8- 1 = 8.3723%. Thus, the least expensive type of credit for Yonge is trade credit with an effective cost of 8.3723 percent. Answers and Solutions: 27 - 9...
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This note was uploaded on 07/13/2011 for the course FIN 4414 taught by Professor Staff during the Spring '08 term at University of Florida.

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