Canterbury Co. issues a discounted, non-interest-bearing note in exchange for borrowed funds. Choose whether the cash...

Canterbury Co. issues a discounted, non-interest-bearing note in exchange for borrowed funds. Choose whether the cash received will be higher or lower than the face value of the note, and whether the effective annual interest rate will be higher or lower than the discount rate:

Cash Received vs. Face Value of Note      Effective Rate vs. Discount Rate
a.   Higher      Lower
b.   Lower      Higher
c.   Lower      Lower
d.   Higher      Higher

Solutions

Expert Solution

The Answer is b. Lower Higher

Explanation:

1) If notes are issued at discount, then cash received is always be lower than the face value of the note.

2) If notes are issued at discount which means effective interest rate is higher than discount rate.

3) So, remaining options are not correct.

ekkarill92 answered 2 years ago

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