Evaluating Alternative Notes

A borrower has two alternatives for a loan: (1) issue a $180,000, 30-day, 8% note or (2) issue a $180,000, 30-day note that the creditor discounts at 8%. Assume a 360-day year.

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

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

(1) $180,000, 30-day, 8% interest-bearing note	$fill in the blank 2
(2) $180,000, 30-day note discounted at 8%	$fill in the blank 3

c. Alternative ___ is more favorable to the borrower because the borrower ___