Question

oo, Inc., has arranged a line of credit that allows it to borrow up to $55 million at any time. The interest rate is .631 percent per month. Additionally, the company must deposit 5 percent of the amount borrowed in a non-interest bearing account. The bank uses compound interest on its line-of-credit loans. If the company needs $31 million for 8 months, how much will it pay in interest

Answer 1

$1,684,084.19

Step-by-step explanation:

If the company needs $31 million, and it must deposit 5% of what it borrows in a non-interest bearing account, then to have a net borrowing of $31 million, the amount it must borrow, B, is

B * (1 - 5%) = 31 million

= 0.95B = 31 million

and B = $32,631,578.95.

At 0.631% interest rate per month, for 8 months, the amount to be repaid after 8 months

=
`32,631,578.95*(1.00631^(8))=34,315,663.14`

Therefore, the amount paid in interest = 34,315,663.14 - 32,631,578.95

= $1,684,084.19.