Question

Chapter 11 BOOK Show Me How Calculator Ofice 365 Evaluating alternative notes 1. EX 11 11 BLANKSHEETALOO 2. EX 11.01. ALGO A borrower has two alternatives for a loan: (1) $420,000, 60-day, 5 note or (2) issue a $420,000, 60-day note that the creditor discounts at 5% Assume a 360-day year. This information has been collected in the Microsoft Excel Online Open the spreadsheet, perform the required analysis, and input your answers in the questions below 3. PR 1105 ALGO 4. PE 11.04.BLANKSHEET ALGO • 5. PR 1104 ALGO Open spreadsheet 6. EX 11 21 Calculate the amount of the interest expense for each option found your answer to the nearest dollar 7. EX 11 23 EXCEL ALGO s for each alternative 8. PE 1 OSA 9. EX 11 05 1. Determine the proceeds received by the borrower in each alternative Round your answers to the nearest dollar (1) 5420,000, 60-day, 5. Interest-bearing notes (2) 5420.000,-day mot discounted at 10. EX 1 DE EXCEL ALGO Alte is more favorable to the borrower because the borrower Prev My Won

Answer 1

Solution:

a)
interest expense for each alternative =	420000*5%*60/360	3500

b) Proceeds received under alternatives
1) $420000, 60 day,5% simple interest		360000
1) $420000, 60 day note discounted at 5%	420000-3500	416500

c) alternative 1 is more favorable to the borrower since the effective interest rate on alternative 1 is 5% and the effective alternative 2 is 5.04%*.

*(3500/416500)*360/60