Business Administration - Accounting & Financial Planning FIN401 Lecture Notes - Lecture 8: Prepayment Of Loan, Interest Rate Risk, Yield Curve
20 Jan 2018
School
Professor
Document Summary
Short-term credit: short-term loans can be secured much more quickly than long, short-term credit is generally more flexible term credit. Fewer restrictive covenants: with an upward sloping yield curve - short-term credit is normally, short-term credit may be more risky than long-term debt: less expensive than long-term debt. Trade credit: offers a number of advantages: Usually does not entail any restrictive covenants or pledges: there is no explicit cost associated with credit terms such as: of security. Net 40: cash discount allows for a reduction in price if payment is made. Ex: 2/10 net 30: on a billing, we could pay up to the 10th day or wait 20, the cost of forgoing the discount = more days and pay . Approximate cost of a/p & effective rate of a/p. Ear = (1 + periodic interest rate)(number of times/year such an activity can occur) - 1.
