Metlock Inc. loans money to John Kruk Corporation in the amount of $944,000. Metlock accepts an...
Metlock Inc. loans money to John Kruk Corporation in the amount of $944,000. Metlock accepts an 8% note due in 7 years with interest payable semiannually. After 2 years (and receipt of interest for 2 years), Metlock needs money and therefore sells the note to Chicago National Bank, which demands interest on the note of 10% compounded semiannually. What is the amount Metlock will receive on the sale of the note?
Homework Answers
| Amount received on the sale of the note | 871104 |
| Workings: | ||
| Seni-annual interest | 37760 | =944000*8%*6/12 |
| X PV factor | 7.72173 | =(1-(1.05)^-10)/0.05 |
| Present value of interest | 291573 | |
| Principal | 944000 | |
| X PV factor | 0.61391 | =1/1.05^10 |
| Present value of principal | 579531 | |
| Amount received on the sale of the note | 871104 | =291573+579531 |
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