The Stoney River Textiles Company will borrow $50 million for 180 days from Merrimac Bank. The bank will charge Stoney River 4.5 % on a discounted basis. What is the annual percentage rate (APR) to Stoney River (round to the nearest .1 percent)?

Question

Quizplus · Accepted Answer

The APR can be calculated by first determining the actual loan amount received after the discount and then annualizing the interest rate. With a 4.5% discount on $50 million, Stoney River receives $50 million - ($50 million * 4.5%) = $47.75 million. The interest paid is $2.25 million ($50 million - $47.75 million). The APR is ($2.25 million / $47.75 million) * (365 / 180) = 4.71%.

The Stoney River Textiles Company Will Borrow $50 Million for 180