What is a discount as it relates to zero-interest-bearing notes payable?
A) The discount represents the lender's costs to underwrite the note.
B) The discount represents the credit quality of the borrower.
C) The discount represents the cost of borrowing.
D) The discount represents the allowance for uncollectible amounts.

Question

Quizplus · Accepted Answer

In the case of zero-interest-bearing notes payable, the discount represents the cost of borrowing. Since the borrower is not paying any interest, the lender may demand a discount upfront to compensate for the time value of money and the risk involved in lending the funds. Therefore, option C is the correct choice. Options A, B, and D do not accurately describe the nature of the discount in this scenario.

What Is a Discount as It Relates to Zero-Interest-Bearing Notes