Shane's Music has a line of credit with a local bank that permits it to borrow up to $750,000 at any time.The interest rate is 0.28 percent per month.The bank charges compound interest and also requires that 4 percent of the amount borrowed be deposited into a non-interest-bearing account.How much interest will the firm pay if it needs $500,000 of cash for four months to pay its operating expenses?

Question

Quizplus · Accepted Answer

Loan amount = $500,000/(1 - 0.04) = $520,833.33; Interest = [$520,833.33 × (1.0028)⁴] - $520,833.33 = $5,857.88

Shane's Music Has a Line of Credit with a Local