SOLUTION: A cash discount of 2% is given if a bill is paid 20 days in advance of its due date. At what interest rate could you afford to borrow money to take advantage of this discount?
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Question 885995: A cash discount of 2% is given if a bill is paid 20 days in advance of its due date. At what interest rate could you afford to borrow money to take advantage of this discount? Answer by Theo(13342) (Show Source):
You can put this solution on YOUR website! if you pay the bill 20 days in advance of the due date, you pay 100.
if you pay the bill less than 20 days before the due date, you pay 102.
let's say you borrow money at 1% so you can pay the bill 20 days before the due date.
you take that 100 and pay the bill early.
when the payment on the loan is due, you pay back 100 + 1 dollar for a total cost of 101.
you saved 1 dollar.
you will save money as long as the interest rate on the loan is less than the interest rate on the bill that is due.
