If the Deer Valley Ski Association borrows $1,000,000 by issuing, at par, 20-year, 10 percent bonds with semiannual coupons, the total interest expense over the life of the issue is $2,000,000 (= 20 X .10 X $1,000,000). If Deer Valley undertakes a 20-year mortgage or note with an implicit bonowing rate of 10 percent, the annual payments are $1,000,000/8.51356 = $1 17,460. (See Table 4 at the end of the book, 20-period row, 10-percent column.) The total mortgage payments are $2,349,200 (= 20 X

$117,460), and the total interest expense over the life of the note or mortgage is

$1,349,200 (= $2,349,200 - $1,000,000).

Why are the amounts of interest expense different for these two types of borrowing for the same length of time at identical interest rates?

(Appendix)