A Firm Offers Terms of 2/5, Net 30

question 56

Multiple Choice

A firm offers terms of 2/5, net 30.What effective annual interest rate does the firm earn when a customer does not take the discount?

• A)21.69 percent
• B)24.42 percent
• C)28.97 percent
• D)31.08 percent
• E)34.31 percent

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Definitions:

Securities Exchange Act

A federal law enacted in the United States to regulate the trading of securities in the secondary market, to ensure transparency and fairness.

Internal Revenue Code

The body of law governing federal tax administration in the United States.

Felony

A serious crime, typically involving violence, regarded as more severe than a misdemeanor, and generally punishable by imprisonment for more than one year or by death.

Misdemeanor

A criminal offense that is less serious than a felony and generally punishable by fines, penalties, or a short term in jail.