a.Derek Lee Inc. loans money to John Kruk Corporation in the amount of $800,000.

ID: 2372174 • Letter: A

Question

a.Derek Lee Inc. loans money to John Kruk Corporation in the amount of $800,000. Lee accepts an

8% note due in 7 years with interest payable semiannually. After 2 years (and receipt of interest

for 2 years), Lee 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 Lee will

receive on the sale of the note?

b. Derek Lee Inc. wishes to accumulate $1,300,000 by December 31, 2017, to retire bonds outstanding.

The company deposits $200,000 on December 31, 2007, which will earn interest at 10% compounded

quarterly, to help in the retirement of this debt. In addition, the company wants to know

how much should be deposited at the end of each quarter for 10 years to ensure that $1,300,000

is available at the end of 2017. (The quarterly deposits will also earn at a rate of 10%, compounded

quarterly.) (Round to even dollars.)

The semiannual interest received on the loan at 8% = $800,000

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