Answer: 16.03%
Explanation:
Effective Annual Rate = [tex]( 1 + interest)^{number of compounding periods} - 1[/tex]
Interest
= [tex]\frac{Discount rate}{1 - Discount rate}[/tex]
= [tex]\frac{0.0125}{1 - 0.0125}[/tex]
= 0.01265
= 1.27%
Number of Compounding periods
= [tex]\frac{365}{Average Collection period}[/tex]
= [tex]\frac{365}{31}[/tex]
= 11.77 periods
Effective Annual Rate
= [tex]( 1 + 0.0127)^{11.77} - 1[/tex]
= 0.1603
