The cost of trade credit is the cost that someone will incur had he not taken the discount offered. This is calculated through the equation,
cost of trade credit = (1 + d/(1 - d))^(365/(Normal days - discount days)) - 1
From the given above it is identified that:
d = discount = 2% = 0.02
normal days = 85
discount days = 15
Substituting,
cost of trade credit = (1 + 0.02/(1 - 0.02))^(365/(85 - 15)) - 1
= 0.111
Converting this to percentage will give us a final answer of 11.1%.
