Dubois Inc. loans money to John Kruk Corporation in the amount of $824,400. Dubo

Question

Dubois Inc. loans money to John Kruk Corporation in the amount of $824,400. Dubois accepts an 8% note due in 6 years with interest payable semiannually. After 2 years (and receipt of interest for 2 years), Dubois 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 Dubois will receive on the sale of the note? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Dubois Inc. wishes to accumulate $1,335,000 by December 31, 2024, to retire bonds outstanding. The company deposits $204,400 on December 31, 2014, 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 $1,335,000 is available at the end of 2024. (The quarterly deposits will also earn at a rate of 10%, compounded quarterly.) (Hound factor values to 5 d**calomel places, e.g. 1.13124 and final answer to 0 decimal places, e.g. 458,581.)

Explanation / Answer

Calculate amount receive on sale of note:

Interest payment for note: 824,400*0.08/2 = 32,976

Putting into calculator:

N = 8 (4 years left, 8 semiannual periods)

I = 5% (10% annual, 5% semiannual)

Payment = 32,976

Future value = 824,400

Present value = PV(5%,8,32976,-824400) = $771,117.27

Caclulate the payments to be made at every quarter for 10 years:

N = 10*4 = 40

I = 10%/4 = 2.5%

Present value = 204,400

Future value = $1,335,000

Payment to be made = PMT(rate,nper,pv,(fv))

= PMT(10%/4,40,204400,(1335000))

= $27,948.90

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