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A retailer owes a wholesaler $900,000 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 $900,000 in a certificate of deposit and make money on the interest. The retailer has two options: a 45-day certificate of deposit (CD) earning 7% per year simple interest or a 60-day certificate earning 8% 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 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.) S 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 $900,000 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 $900,000 in a certificate of deposit and make money on the interest. The retailer has two options: a 45-day certificate of deposit (CD) earning 7% per year simple interest or a 60-day certificate earning 8% 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 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.) S 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.

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter17: The Management Of Cash And Marketable Securities
Section: Chapter Questions
Problem 10P
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A retailer owes a wholesaler $900,000 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 $900,000 in a certificate of deposit and make money on the interest. The retailer has two options: a 45-day certificate of deposit (CD) earning 7% per year simple interest or a 60-day certificate earning 8% 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? O The 45-day certificate is better. O The 60-day certificate is better. O They are equivalent.
Transcribed Image Text:A retailer owes a wholesaler $900,000 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 $900,000 in a certificate of deposit and make money on the interest. The retailer has two options: a 45-day certificate of deposit (CD) earning 7% per year simple interest or a 60-day certificate earning 8% 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? O The 45-day certificate is better. O The 60-day certificate is better. O They are equivalent.
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