A retailer owes a wholesaler $700,000 due in 45 days. If the payment is 15 days late, there is a 1% penalty charge. Since the bill isn't due immediately, the retailer can invest the $700,000 in a certificate of deposit and make money on the interest. The retailer has two options: a 45-day certificate of deposit (CD) earning 8% per year simple interest or a 60-day certificate earning 9% per year simple interest. How much interest would the retailer earn? Use 360 days in a year. (Round your answers to the nearest cent.) 45-day certificate $ 60-day certificate $ If the retailer opts for the 60-day certificate of deposit, he will be late on his payment to the wholesaler. How much will the penalty be if he is late on his payment to the wholesaler? $ How much will the retailer make in total if he opts for the 60-day certificate and has to pay the penalty out of the proceeds of the interest earned on the CD? (Round your answer to the nearest cent.) $ Is it better to take the 45-day certificate and pay on time or take the 60-day certificate and pay late with the penalty? The 45-day certificate is better. The 60-day certificate is better. They are equivalent.
A retailer owes a wholesaler $700,000 due in 45 days. If the payment is 15 days late, there is a 1% penalty charge. Since the bill isn't due immediately, the retailer can invest the $700,000 in a certificate of deposit and make money on the interest. The retailer has two options: a 45-day certificate of deposit (CD) earning 8% per year simple interest or a 60-day certificate earning 9% per year simple interest. How much interest would the retailer earn? Use 360 days in a year. (Round your answers to the nearest cent.) 45-day certificate $ 60-day certificate $ If the retailer opts for the 60-day certificate of deposit, he will be late on his payment to the wholesaler. How much will the penalty be if he is late on his payment to the wholesaler? $ How much will the retailer make in total if he opts for the 60-day certificate and has to pay the penalty out of the proceeds of the interest earned on the CD? (Round your answer to the nearest cent.) $ Is it better to take the 45-day certificate and pay on time or take the 60-day certificate and pay late with the penalty? The 45-day certificate is better. The 60-day certificate is better. They are equivalent.
Chapter17: The Management Of Cash And Marketable Securities
Section: Chapter Questions
Problem 10P
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Question
A retailer owes a wholesaler $700,000 due in 45 days. If the payment is 15 days late, there is a 1% penalty charge. Since the bill isn't due immediately, the retailer can invest the $700,000 in a certificate of deposit and make money on the interest. The retailer has two options: a 45-day certificate of deposit (CD) earning 8% per year simple interest or a 60-day certificate earning 9% per year simple interest.
How much interest would the retailer earn? Use 360 days in a year. (Round your answers to the nearest cent.)
45-day certificate $
60-day certificate $
If the retailer opts for the 60-day certificate of deposit, he will be late on his payment to the wholesaler. How much will the penalty be if he is late on his payment to the wholesaler?
$
How much will the retailer make in total if he opts for the 60-day certificate and has to pay the penalty out of the proceeds of the interest earned on the CD? (Round your answer to the nearest cent.)
$
Is it better to take the 45-day certificate and pay on time or take the 60-day certificate and pay late with the penalty?
The 45-day certificate is better.
The 60-day certificate is better.
They are equivalent.
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