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1) Your firm sells for cash only; but it is thinking of presenting credit, allowing customers ninety days to pay. Customers know time value of money, so they would all stay and pay on 90th day. To carry these receivables, you would have a loan of funds from your bank at the nominal 6%, daily compounding based on= 360-day year. You wish to raise your base prices by exactly sufficient to offset your bank interest cost. To closest whole percentage point, by how much must you raise your product prices?

2) Nominal interest rate and extending credit: As a jewellery store manager, you wish to present credit, with interest on outstanding balances paid monthly. To carry receivables, you should borrow funds from your bank at the nominal 6%, monthly compounding. To compensate your overhead, you wish to charge your customers the EAR (or EFF%) i.e., 2% more than bank is charging you. What APR rate must you charge your customers?

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  • Category:- Basic Finance
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