Cost of Short-term Credit:
Fair cross Farms harvests its crops four times annually and receives payment for its crop 90 days after it is picked and shipped. However, planting, irrigating, and harvesting must be done on a nearly continual schedule. The firm uses 90-day bank notes to finance its operations. The firm arranges an 10 percent discount interest loan with a 12 percent compensating balance four times annually. What is the effective annual interest rate of these discount loans?
Gladys Turner borrowed $25,000 from the bank using a 8 percent add-on, one-year installment loan, payable in four equal quarterly payments. What is the effective annual rate of interest?
Yonge buys on terms 2/30 net 60. What is the effective annual cost of trade credit? (assume 360 days/year)