What Happens to the Implied Interest Rate on Trade Credit

question 63

Multiple Choice

What happens to the implied interest rate on trade credit as the time interval between the discount period and payment period is decreased?

• A)The rate declines
• B)The rate increases
• C)The rate remains constant
• D)Impossible to predict without knowing length of discount period

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Definitions:

Income

The financial return or compensation received by an individual or household from various sources like labour, investments, or business ventures.

Budget Constraints

A financial restriction that limits the amount of money that can be spent on different categories of goods and services.

Optimum

The most favorable condition or level for growth, reproduction, or success.

Substitutes

Two goods for which an increase in the price of one leads to an increase in the demand for the other.