A borrower has two alternatives for a loan: (1) Issue a $120,000, 90-day, 6% note or (2)

Question:

A borrower has two alternatives for a loan:
(1) Issue a $120,000, 90-day, 6% note or
(2) Issue a $120,000, 90-day note that the creditor discounts at 6%.
a. Calculate the amount of the interest expense for each option.
b. Determine the proceeds received by the borrower in each situation.
c. Which alternative is more favorable to the borrower? Explain.