Question

Larkspur Inc. loans money to John Kruk Corporation in the amount of $1,008,000. Larkspur accepts an 8% note due in 7 years with interest payable semiannually. After 2 years (and receipt of interest for 2 years), Larkspur needs money and therefore sells the note to Chicago National Bank, which demands interest on the note of 10% compounded semiannually. What is the amount Larkspur will receive on the sale of the note?

Answer 1

Ans : Amount Receivable by larkspur on the sale of the note :

          = 1008000 0x 4% PVAF (5%,10) + 1008000 PVIF (5%,10)

           = 1008000 x 4% x 7.7217 + 1008000x .6139

            = 93,0150 Ans.

Note r= 4% ( 8/2)

       i = 5% (10/2)

   time= n= 5 x2 = 10 periods