Oriole Company receives a $78,000, 10-year note bearing interest of 9% (paid annually) from a customer...

Oriole Company receives a $78,000, 10-year note bearing interest of 9% (paid annually) from a customer at a time when the discount rate is 11%.

(For calculation purposes, use 5 decimal places as displayed in the factor table provided.)

What is the present value of the note received by Oriole? (Round answer to 2 decimal places, e.g. 25.25.)

Present value of note received = ??

Expert Solution

Present value of note received = $ 68,812.43

Working

	Annual Rate	Applicable rate	Face Value	$ 78,000
Discount Rate	11.00%	11.00%	Term (in years)	10
Coupon Rate	9.00%	9.00%	Total no. of interest payments	10

.

	Notes receivable Face Value		Market Interest rate (applicable for period/term)
PV of	$ 78,000	at	11.00%	Interest rate for	10	term payments
PV of $1	0.35218
PV of	$ 78,000	=	$ 78,000	x	0.35218	=	$ 27,470

Interest payable per term	at	9.00%	on	$ 78,000
Interest payable per term	$ 7,020

PVAF of 1$	for	11.00%	Interest rate for	10	term payments
PVAF of 1$	5.88923
PV of Interest payments	=	$ 7,020	x	5.88923	=		$ 41,342

				present Value (A+B)			$ 68,812.43

ekkarill92 answered 1 year ago

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