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DoKado Inc. loans money to HaraKiri Corp. in the amount of $600,000. DoKado Inc. accepts an...

  1. DoKado Inc. loans money to HaraKiri Corp. in the amount of $600,000. DoKado Inc. accepts an 8% note due in 7 years with interest payable semi-annually. After 2 years (and receipt of interest for 2 years), DoKado Inc. needs money and therefore sells the note to Chicago National Bank, which demands interest on the note of (10%,2). What is the amount DoKado Inc. will receive on the sale of the note?

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Answer #1

Amount received on sale of note = $553,667.52

Present value of loan = Future value of loan * Present value of $ 1

Present value of loan = $600,000 * 0.61391

Present value of loan = $368,346

Present value of $1, N = 10payments, i= 5%[10*6/12 months] is 0.61391

Interest amount = $ 600,000*4% = $24,000

Present value of interest = Interest amount * Present value of annuity

Present value of Interest = $ 24,000 * 7.72173

Present value of Interest = $185,321.52

The amount received on sale of note ( Combined present value) = $553,667.52 ($368,346 + $185,321.52)

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