A Firm Sells Its Accounts Receivable to a Factor at a 5

question 23

Multiple Choice

A firm sells its accounts receivable to a factor at a 5% discount.If the average collection period is 1 month, determine the effective annual rate of interest on the factoring.

• A)90.06%
• B)85.06%
• C)80.06%
• D)75.06%

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Definitions:

Monetary Policy

Actions by a central bank to control the money supply and interest rates in an economy.

Trade Restrictions

Measures imposed by governments to control the amount of goods and services that can be traded across borders.

Sound Policy

A policy that is well-founded, practical, and likely to produce desired outcomes, often based on evidence and rational analysis.

Rational-Ignorance Effect

The decision by individuals to remain uninformed about an issue because the perceived cost of acquiring the knowledge outweighs the expected benefits.