Answer:
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
