Question - Evaluating Alternative Notes
A borrower has two alternatives for a loan: (1) issue a $660,000, 90-day, 9% note or (2) issue a $660,000, 90-day note that the creditor discounts at 9%. Assume a 360-day year.
a. Calculate the amount of the interest expense for each option.
b. Determine the proceeds received by the borrower in each situation.
(1) $660,000, 90-day, 9% simple-interest.
(2) $660,000, 90-day note discounted at 9%.