Running head: WEEK THREE DISCUSSION QUESTIONS

Week Three Discussion Questions Chiloquin Shelton FIN/571 April 1, 2013 Mr. Robert McGlasson

Running head: WEEK THREE DISCUSSION QUESTIONS

Challenging Question 11 from Ch. 22 in the text Why are interest rates on short-term loans not necessarily comparable to each other? Give three possible reasons. Interest rates on short term loans are not comparable to each other because one, interest rates are based on credit worthiness of those who take out short-term loans, two market competition can play a role. Lenders that are promoting a product or service may offer special loan rates for specific periods and times. Financial lenders of car dealerships tend to do this when they are trying to sale off cars for a particular year to bring in the new car models. Finally, the length can vary for short term loans which can affect the interest rates. Typically, the shorter the loan the higher the interest rate. The lender wants to make money so in order to do so; they typically charge more for short term loans. Question 4 from Ch. 23 in the text Optical Supply Company offers credit terms of 2/10, net 60. If Optical Supply is considering a change in its credit terms to one of those indicated, explain whether the change should increase or decrease sales. (a) 2/10, net 30, (b) net 60, (c) 3/15, net 60, (d) 2/10, net 30, 30 extra. a) 2/10 net 30 decrease sales because it must be paid back within 30 days from the date of invoice with a discount period of 10 days. b) Net 60 decreases sales since there is no incentive for repayment within 10 days c) 3/15 net 60 increases sales because the discount percent increases d) It should remain the same as 2/10, net 60

Running head: WEEK THREE DISCUSSION QUESTIONS

Reference

Emery, D. R., Finnerty, D. D., & Stowe, J. D. (2007). The Financial Environment:Concepts and Principles (7th ed.). : Pearson Company.