Question

Using the appropriate present value table and assuming a 2% annual market interest rate, determine the present value, of a 3 year note with the face value of $5,000, and stated interest rate of 4%, with annual interest payments.

Your firm agrees to the lend money to your supplier at the present value of the above note receivable. Write down the journal entries to record the initiation of such a loan at the calculated present value.

Step 1: determine the amount of interest payments?

Step 2. Discount future cash flows using the market rate of interest to get the present value of future cashflows?

Please, do all answers and show the processes

Answer 1

Use the following table to calculate the present value on December 31, 2011, of a five-period annual annuity of $5,000 assuming that the first payment is received on December 31, 2012, and interest is compounded annually:

Hence, the present value on December 31, 2011 if the first payment is received on December 31, 2012, and interest is compounded annually is $18,024.

Use the following table to calculate the present value on December 31, 2011, of a five-period annual annuity of $5,000 assuming that the first payment is received on December 31, 2011, and interest is compounded annually:

Hence, the present value on December 31, 2011 if the first payment is received on December 31, 2011, and interest is compounded annually is $20,187.