Answer (C) is correct . The buyer could satisfy the $100 obligation by paying $98 on the 10th day. By choosing to wait until the 40th?day, the buyer is effectively paying a $2 interest charge for the use of $98 for 30 days (40-day credit period – 10-day discount period). The annualized cost of not taking this discount can be calculated as follows: ? Cost of not taking discount = [2% ÷ (100% – 2%)] × [360 days ÷ (40 days – 10 days)] = (2% ÷ 98%) × (360 days ÷ 30 days) = 2.0408% × 12 = 24.49%
Answer (A) is incorrect because This percentage is the discount rate.
Answer (B) is incorrect because This percentage is based on the 40-day credit period.
Answer (D) is incorrect because This percentage is based on a 20-day credit period.
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