Homework Answers
Solution
Value of note receivable= $60,409.01
Working
| Annual Rate | Applicable rate | Face Value | $ 55,000 | ||
| Market Rate | 6.00% | 6.00% | Term (in years) | 6 | |
| Coupon Rate | 8.00% | 8.00% | Total no. of interest payments | 6 |
.
| Note Face Value | Market Interest rate (applicable for period/term) | ||||||
| PV of | $ 55,000 | at | 6.00% | Interest rate for | 6 | term payments | |
| PV of $1 | 0.70496 | ||||||
| PV of | $ 55,000 | = | $ 55,000 | x | 0.70496 | = | $ 38,773 |
| Interest payable per term | at | 8.00% | on | $ 55,000 | |||
| Interest payable per term | $ 4,400 | ||||||
| PVAF of 1$ | for | 6.00% | Interest rate for | 6 | term payments | ||
| PVAF of 1$ | 4.91732 | ||||||
| PV of Interest payments | = | $ 4,400 | x | 4.91732 | = | $ 21,636 | |
| Note receivable Value (A+B) | $ 60,409.01 |
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