Question

Present and future value tables of $1 at 11% are presented below.

	PV of $1	FV of $1	PVA of $1	FVA of $1
1	0.90090	1.11000	0.90090	1.0000
2	0.81162	1.23210	1.71252	2.1100
3	0.73119	1.36763	2.44371	3.3421
4	0.65873	1.51807	3.10245	4.7097
5	0.59345	1.68506	3.69590	6.2278
6	0.53464	1.87041	4.23054	7.9129

Spielberg Inc. signed a $250,000 noninterest-bearing note due in two years from a production company eager to do business. Comparable borrowings have carried an 11% interest rate. What is the value of this debt at its inception?

Answer 1

Year	PV of $ 1	Amount	Value at Inception
	1 / (1 + 11%)^Year	A	PV X A
1	0.9009	$         250,000	$                   225,225
2	0.81162	$         250,000	$                   202,905
3	0.73119	$         250,000	$                   182,798
4	0.65873	$         250,000	$                   164,683
5	0.59345	$         250,000	$                   148,363
6	0.53464	$         250,000	$                   133,660

The value of this debt at inception (250,000 2 years) will be $ 202,905