The Correct Equation for Calculating the Cost of Short-Term Credit

question 108

Multiple Choice

The correct equation for calculating the cost of short-term credit is

• A) rate = interest/(principal × time).
• B) rate = (principal × time)/interest.
• C) rate = principal/(time × interest).
• D) rate = principal × interest × time.

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Definitions:

Dividends

Distributions of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders, typically in the form of cash, stocks, or other assets.

Accrued Interest

Interest that has been earned but not yet received in cash or recorded, representing a liability for the payer and an asset for the receiver.

Semiannual Interest

Interest calculated and disbursed semi-annually.

Bonds

Fixed income investments representing loans made by an investor to a borrower, typically corporate or governmental, which are expected to be paid back with interest.