A want to sell you a note with a face value of $1,000,000. The face rate on the

Question

A want to sell you a note with a face value of $1,000,000. The face rate on the note is 10% and is payable in 4equal payments which include interest at 10%. The note has fouryears left to run and is seasoned. How much would you pay for thenote to earn 12%? A want to sell you a note with a face value of $1,000,000. The face rate on the note is 10% and is payable in 4equal payments which include interest at 10%. The note has fouryears left to run and is seasoned. How much would you pay for thenote to earn 12%?

Explanation / Answer

the interest payment is $100,000 with 4 payments (Interest Payment) PVA = $100,000 * 3.0373(Annuity factor, 12%,4payments)                                     = $303,735 (Face Value) PA = $1,000,000 * 1/(1.12)4                           = $635,518 Value pay for the bond = $303,735 + $635,518 = $939,253 A discount of 93.93%

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.