The Blackstone River Textiles Company will borrow $50 million for 6 months days from Woonssocket Bank. The bank will charge Blackstone 4.5 % on a discounted basis. What is the dollar amount of interest Stoney River will need to pay and how much of the loan will Blackstone actually be able to use?

Question

Quizplus · Accepted Answer

The interest on the loan will be calculated using the discount formula:

Interest = Principal x Rate x Time
Interest = $50,000,000 x 0.045 x (6/12)
Interest = $1,125,000

So Blackstone will need to pay $1,125,000 in interest.

The amount of the loan that Blackstone will actually receive is calculated by subtracting the interest from the principal:

Loan amount = Principal - Interest
Loan amount = $50,000,000 - $1,125,000
Loan amount = $48,875,000

So Blackstone will be able to use $48,875,000 of the loan. Therefore, option A is the best choice.

The Blackstone River Textiles Company Will Borrow $50 Million for 6