Evaluating alternative notes

A borrower has two alternatives for a loan: (1) issue a $480,000, 120-day, 7% note or (2) issue a $480,000, 120-day note that the creditor discounts at 7%. Assume a 360-day year.

a. Compute the amount of the interest expense for each option. fill in the blank 1 of 1$ for each alternative.

b. Determine the proceeds received by the borrower in each situation.

Line Item Description	Amount
(1) $480,000, 120-day, 7% interest-bearing note	$fill in the blank 2
(2) $480,000, 120-day note discounted at 7%	$fill in the blank 3

c. Alternative

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is more favorable to the borrower because the borrower

receives more cashpays more interesthas an extension of time to pay

.