A borrower has two alternatives for a loan:
(1) issue a $480,000, 60-day, 8% note or
(2) issue a $480,000, 60-day note that the creditor discounts at 8%.
(Assume a 360-day year is used for interest calculations.)
(a)Calculate the amount of the interest expense for each option.
(b)Determine the proceeds received by the borrower in each situation.

Question

A borrower has two alternatives for a loan: 
(1) issue a $480,000, 60-day, 8% note or 
(2) issue a $480,000, 60-day note that the creditor discounts at 8%. 
(Assume a 360-day year is used for interest calculations.)
(a)Calculate the amount of the interest expense for each option.
(b)Determine the proceeds received by the borrower in each situation.

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The Answer of A borrower has two alternatives for a loan: 
(1) issue a $480,000, 60-day, 8% note or 
(2) issue a $480,000, 60-day note that the creditor discounts at 8%. 
(Assume a 360-day year is used for interest calculations.)
(a)Calculate the amount of the interest expense for each option.
(b)Determine the proceeds received by the borrower in each situation.

A Borrower Has Two Alternatives for a Loan