Question

Please do it by type not pics.

1.Calculate the implicit rate for the Notes Receivable using the following information.   $100,000 ten-year note with 4% interest whose present value is $92,278.27.   

Answer 1

Solution:

Let implicit rate of return is i

At implicit rate of return, present value of interest and maturity amount is equal to present value of note i.e. $92,278.27

Lets calculated present value of interest and maturity amount at 5%

= ($4,000 * Cumulative PV factor at 5% for 10 periods) + ($100,000 * PV factor at 5% for 10th period)

= $4,000 * 7.721735 + $100,000*0.613913

= $92,278.27

As present value of note at 5% rate is equal to $92,278.27, hence implicit rate is 5%.