The Blackstone River Textiles Company will borrow $50 million for six months 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

To calculate the interest, we can use the formula: 
interest = (principal x rate x time) / (1 - rate x time) 
Here, the principal is $50 million, the rate is 4.5%, and the time is 6/12 = 0.5 years. 
So, interest = (50 million x 4.5% x 0.5) / (1 - 4.5% x 0.5) = $1,125,000 
To find the amount Blackstone can actually use, we need to subtract the interest from the loan amount: 
50 million - 1,125,000 = $48,875,000 
Therefore, the best choice is A.

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