Question

knights inc loans money to jacob corporation in the amount of $848,000. Knights accepts an 8% note due in 7 years with interest payable semianually. after 2 years (and receipt of interest for 2 years), knights needs money and therefore sells the note to chicago national bank, which demands interest of the note of 10% compounded semiannually. what is the amount knights will receive on the sale of the note? round factor values to 5 decinal places and final answer to 0 decimal places.

Answer 1

Remaining life of note = original life - expired period = 8 years - 2 years = 6 years.

Below is the note price:

Particulars	Cash flow	Discount factor	Discounted cash flow
present value Interest payments-Annuity (5%,12 periods)	33,920.0	8.86325	300,641.44
Present value of bond face amount -Present value (5%,12 periods)	848,000	0.55684	472,200.32
Note price			772,841.76
Face value			848,000.00
Premium/(Discount)			-75,158.24
Interest amount:
Face value	848,000
Coupon/stated Rate of interest	8.000%
Frequency of payment(once in)	6 months
Interest amount	848000*0.08*6/12=		$                33,920
Present value calculation:
yield to maturity/Effective rate	10.00%
Effective interest per period(i)	0.1*6/12=		5.000%

Note will be sold for $772,841.76

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