A borrower has two alternatives for a loan: (1) issue a $360,000, 60-day, 5% note or (2) issue a $360,000, 60-day note that the creditor discounts at 5%. Assume a 360-day year. a. Calculate the amount of the interest expense for each option. $fill in the blank 1 for each alternative. b. Determine the proceeds received by the borrower in each situation. (1) $360,000, 60-day, 5% simple-interest $fill in the blank 2 (2) $360,000, 60-day note discounted at 5% $fill in the blank 3 c. Alternative is more favorable to the borrower since the effective interest rate on alternative 1 is and the effective rate on alternative 2 is
A borrower has two alternatives for a loan: (1) issue a $360,000, 60-day, 5% note or (2) issue a $360,000, 60-day note that the creditor discounts at 5%. Assume a 360-day year. a. Calculate the amount of the interest expense for each option. $fill in the blank 1 for each alternative. b. Determine the proceeds received by the borrower in each situation. (1) $360,000, 60-day, 5% simple-interest $fill in the blank 2 (2) $360,000, 60-day note discounted at 5% $fill in the blank 3 c. Alternative is more favorable to the borrower since the effective interest rate on alternative 1 is and the effective rate on alternative 2 is
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Evaluating Alternative Notes
A borrower has two alternatives for a loan: (1) issue a $360,000, 60-day, 5% note or (2) issue a $360,000, 60-day note that the creditor discounts at 5%. Assume a 360-day year.
a. Calculate the amount of the interest expense for each option.
$fill in the blank 1 for each alternative.
b. Determine the proceeds received by the borrower in each situation.
| (1) $360,000, 60-day, 5% simple-interest | $fill in the blank 2 |
| (2) $360,000, 60-day note discounted at 5% | $fill in the blank 3 |
c. Alternative
is more favorable to the borrower since the effective interest rate on alternative 1 is
and the effective rate on alternative 2 is
.
![**Evaluating Alternative Notes**
A borrower has two alternatives for a loan: (1) issue a $360,000, 60-day, 5% note or (2) issue a $360,000, 60-day note that the creditor discounts at 5%. Assume a 360-day year.
**a.** Calculate the amount of the interest expense for each option.
\[ \text{\$} \underline{\quad} \] for each alternative.
**b.** Determine the proceeds received by the borrower in each situation.
(1) $360,000, 60-day, 5% simple-interest
\[ \text{\$} \underline{\quad} \]
(2) $360,000, 60-day note discounted at 5%
\[ \text{\$} \underline{\quad} \]
**c.** Alternative \[ \underline{\quad} \] is more favorable to the borrower since the effective interest rate on alternative 1 is \[ \underline{\quad} \] and the effective rate on alternative 2 is \[ \underline{\quad} \] .](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F2957e6dc-f791-471e-8faf-303d41a647f1%2F351fc605-a7c4-42ec-b4d2-146c2f158d79%2F7i81gv_processed.png&w=3840&q=75)
Transcribed Image Text:**Evaluating Alternative Notes**
A borrower has two alternatives for a loan: (1) issue a $360,000, 60-day, 5% note or (2) issue a $360,000, 60-day note that the creditor discounts at 5%. Assume a 360-day year.
**a.** Calculate the amount of the interest expense for each option.
\[ \text{\$} \underline{\quad} \] for each alternative.
**b.** Determine the proceeds received by the borrower in each situation.
(1) $360,000, 60-day, 5% simple-interest
\[ \text{\$} \underline{\quad} \]
(2) $360,000, 60-day note discounted at 5%
\[ \text{\$} \underline{\quad} \]
**c.** Alternative \[ \underline{\quad} \] is more favorable to the borrower since the effective interest rate on alternative 1 is \[ \underline{\quad} \] and the effective rate on alternative 2 is \[ \underline{\quad} \] .
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