Fibercom Inc. needs $500,000 for one year. If the loan takes the form of a discounted note at a stated rate of 4%, how much will Fibercom actually need to borrow?
A) $480,000
B) $500,000
C) $520,833
D) $520,000

Question

Quizplus · Accepted Answer

Since it is a discounted note, the amount borrowed is less than the required amount. To calculate how much will actually be borrowed, we need to use the formula: Amount Borrowed = Required Amount / (1 - Discount Rate * Time Period)

In this case, the Required Amount is $500,000, the Discount Rate is 4%, and the Time Period is 1 year.

Plugging in the values, we get:

Amount Borrowed = $500,000 / (1 - 0.04 * 1) 
Amount Borrowed = $500,000 / 0.96 
Amount Borrowed = $520,833

Therefore, Fibercom will actually need to borrow $520,833. The answer is C.