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Evaluating Alternative Notes

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.

$(1)$ $$240,000,90-$day, $8\%$ simple$-$interest $

$(2)$ $$240,000,90-$day note discounted at $8\%$

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 $8$

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A $360-$day year is used when calculating interest on a note. Recall the definition of proceeds is the amount that the borrower receives in cash or merchandise.

Consider amount of money available for use. Consider the effective interest rate for each method.