Ask Question
27 January, 07:48

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.) Required: a. Calculate the amount of the interest expense for each option. $ for alternative (1) $ for alternative (2) b. Determine the proceeds received by the borrower in each situation. Alternative 1 $ proceeds Alternative 2 $ proceeds

+2
Answers (1)
  1. 27 January, 10:16
    0
    Find below correct question:

    A borrower has two alternatives for a loan: (a) issue a $480,000, 60-day, 8% note or (2) issue a $520,000, 120-day note that the creditor discounts at 12%. (Assume a 360-day year is used for interest calculations.)

    Alternative 1

    $6,400

    $473,600

    Alternative 2:

    $20,800

    $ 499,200

    Explanation:

    The interest expense=loan amount*interest rate*number of days/360

    Alternative 1

    loan amount is $480,000

    interest rate is 8%

    number of days is 60 days

    interest expense=$480,000*8%*60/360=$6400

    Proceeds=face value of the loan-interest expense=$480,000-$6,400

    Alternative 2

    loan amount is $520,000

    interest rate is 12%

    number of days is 120 days

    interest expense=$520,000*12%*120/360 = $ 20,800.00

    Proceeds=face value of the loan-interest expense=$520,000-$20,800=$ 499,200.00
Know the Answer?
Not Sure About the Answer?
Get an answer to your 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 ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers