A borrower has two alternatives for a loan: (1) issue a $300,000, 120-day, 8% note or (2) issue a $300,000, 120-day note that the creditor discounts at 8%. Assume a 360-day year.
A borrower has two alternatives for a loan: (1) issue a $300,000, 120-day, 8% note or (2) issue a $300,000, 120-day note that the creditor discounts at 8%. Assume a 360-day year.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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A borrower has two alternatives for a loan: (1) issue a $300,000, 120-day, 8% note or (2) issue a $300,000, 120-day note that the creditor discounts at 8%. Assume a 360-day year.
a. Calculate the amount of the interest expense for each option.
$ for each alternative.
b. Determine the proceeds received by the borrower in each situation.
| (1) $300,000, 120-day, 8% interest-bearing note | $ |
| (2) $300,000, 120-day note discounted at 8% | $ |
c. Alternative is more favorable to the borrower because the borrower .
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