The answer is
C. using an imputed interest rate to discount all future payments on the note.
Here is a quote from your book:
P.S. Thank you for the bonus
In note transactions, other factors involved in the exchange, such as the fair market value of the property, goods, or services, determine the effective or real interest rate. But, if a company cannot determine that fair value, and if the note has no ready market, determining the present value of the note is more difficult. To estimate the present value of a note under such circumstances, the company must approximate an applicable interest rate that may differ from the stated interest rate. This process of interest-rate
approximation is called imputation. The resulting interest rate is called an imputed interest rate.