Question

In: Accounting

Find the following present values on October 31, 2020. a) Canadian T-bill maturing for $1.2 million...

Find the following present values on October 31, 2020.

a) Canadian T-bill maturing for $1.2 million in 273 days based on a yield rate of 1.25%

b) $10,000 due on March 31, 2025 at a force of interest of 5%

c) $3,600 due on April 30, 2022 at a nominal rare of discount of 6%, compounded 6 times a year.

d) Payments on $10,000 made every November 1 from 2020 to 2025 at 6.5% interest.

Solutions

Expert Solution

a)
Yield rate 1.25 for 365 days
Yield rate is 0.935% for 273 days
PVIF @ 0.935% is1/(1.00935)=0.99073
Present value of 1.2 Million note is 0.99073*1.2M=1.888Million
b)
PVIF @ 5% is 1/(1.05)^4.41666=0.806147
Present value of 10000 maturing at 31.03.2025 is 10000*0.806147=8061.47
PVIF=1/(1+r)^n
r=rate
n= number of periods
In this case no. of years is 4 years and 5 months which comes to 4.41666
c)
It is said in the question that the compounding period is 2 months( i.e, 6 times in a year)
Period between 31.10.2020 and 30.04.2022 is 18 months. That means, n=18/2=9
Rate is 6% for 12 months then 1% for 2 months
PVIF @ 1%, 9=1/(1.01)^9=0.91434
Present value of 3600 on 31.04.2022 is 3600*0.91434=3291.624
d)
Year PVIF @ 6.5% Installement DCF
0                        1.00        10,000.00       10,000.00
1                        0.94        10,000.00         9,389.67
2                        0.88        10,000.00         8,816.59
3                        0.83        10,000.00         8,278.49
4                        0.78        10,000.00         7,773.23
      44,257.99
Present value of installement is 44258

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