It's 1998 and Philips N.V.requires Lit 500 million for one year.It can borrow from Banca di Roma at a 15% interest rate.How many lira must Philips borrow to receive this amount if the loan is quoted on a discount basis?

Question

Quizplus · Accepted Answer

Since the loan is quoted on a discount basis, the amount borrowed will be less than the amount required. To find out how much Philips needs to borrow, we can use the following formula:

Amount Borrowed = Amount Required / (1 - Discount Rate)

In this case, the discount rate is not given, but we can calculate it using the interest rate as follows:

Discount Rate = Interest / (1 - Interest) = 0.15 / (1 - 0.15) = 0.1765

Now we can plug in the values:

Amount Borrowed = Lit 500 million / (1 - 0.1765) = Lit 588 million

Therefore, the best choice is B) Lit 588 million.