Response to the following problem:
The I. Krueger Company is evaluating its credit terms. Currently, the I. Krueger Company allows its customers to pay in 30 days and gives the customers a 2% discount if they pay in within five days.
a. What is the effective interest rate on its current credit terms?
b. If I. Krueger moves the discount period from five days to three days (leaving the amount of the discount the same), what would be the effective interest rate that it charges credit customers that pay in 30 days?
c. If I. Krueger changes only the discount rate from 2% to 3% (leaving the discount period the same), what would be the effective interest rate that it charges its credit customers that pay in 30 days?
d. If I. Krueger changes the discount rate from 2% to 3% and changes the discount period from five to three days, what would be the effective interest rate that it charges its credit customers that pay in 30 days?