Question

Please do it by type not pics.

1.Calculate the annual implicit rate for the notes receivable using the following information.

Notes Receivable of $50,000

6% Coupon Rate

5 Year

Present Value of $50,455.19

Compounds Quarterly

annual rate=

Answer 1

P = C x PVIFA_{r/4, 4n} + M * PVIF_r/4,4n

Quarterly coupon payment = ( 6% / 4 ) * $ 50,000

Quarterly coupon payment = $ 750

$50,455.19 = $ 750 * PVIFA_{r/4, 5x4 yrs}  + $ 50,000 * PVIF_{r/4, 5x4 yrs}

By trail and error

let r = 1.5%

Price = $ 750 * 17.168639 + $ 50,000 *0.742470

Price = $ 49,999.95

At r = 1%

Price = $ 750 * 18.045553 + $ 50,000 * 0.819544

Price = $ 54,511.36

rate of return = 1 % + [ $ 54,511.36 - $ $50,455.19 ] [ $ 54,511.36 - $ 49,999.95 ]

Semi annual Rate of return = 1.90%

Annual rate of return = 7.6%