Question

Questions 3 - 5 use the below data. You bought a piece of equipment by signing the following note payable. The note is due at maturity and interest is due annually. Face value 355,600 Coupon rate 4.3% Market rate Term What is the ending balance of the note at the end of year 5? 17.5% Multiple Choice 0 335,168 0 302,188 0 345,015 0 355,600

Answer 1

Fisrst of all we need to calculate market price of note payable so that we can figure out the initial recognition of note payable $ 15,290.80 a Annual Interest ($355600*4.3%) b PV Annuity Factor for (6 Years, 7.5%) c Present Value Of Annual Interest (a*b) d Redemption Value e PV Factor Of (6 Years, 7.5%) g Present Value Of Redemption Amount (d*e) f Market price of Note Payable 4.69385 $ 71,772.67 $ 3,55,600.00 0.64796 $ 2,30,415.12 $ 3,02,187.78

Amortization Sheadule Year 04 Opeaning Balance Interest expenses at 7.5% Interest payment Closing balance 1 $ 3,02,188 $ 22,664 $ 15,291 $ 3,09,561 2 $ 3,09,561 $ 23,217 $ 15,291 $ 3,17,487 3,17,487 $ 23,812 $ 15,291 $ 3,26,008 4 $ 3,26,008 $ 24,451 $ 15,291 $ 3,35,168 3,35,168 $ 25,138 $ 15,291 $ 3,45,015 6 $ 3,45,015 $ 25,876 $ 15,291 $ 3,55,600 5 $ Therefore The Correct Option: THIRD