Question

Skysong Inc. loans money to John Kruk Corporation in the amount of $992,000. Skysong accepts an 8% note due in 7 years with interest payable semiannually. After 2 years (and receipt of interest for 2 years), Skysong 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 Skysong will receive on the sale of the note? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Amount received on sale of note $ e Textbook and Media * Your answer is incorrect. Skysong Inc. wishes to accumulate $1,612,000 by December 31, 2027, to retire bonds outstanding. The company deposits $248,000 on December 31, 2017, which will earn interest at 10% compounded quarterly, to help in the retirement of this debt. In addition, the company wants to know how much should be deposited at the end of each quarter for 10 years to ensure that $1,612.000 is available at the end of 2027.(The quarterly deposits will also earn at a rate of 10%, compounded quarterly.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.) Annuity of value of quarterly deposits $

Answer 1

Required 1 :

Amount Received on sale of note = $ 915,397

Explanation :

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

Present value of loan = $ 992,000 * 0.61391

Present value of loan = $ 608,998.72

Present of $ 1 , N= 10 payments , i= 5 % { 10 *6/12 months } is 0.61391

Interest amount = $ 992,000 * 4 % = $ 39,680

Present of interest = Interest amount * Present value of annuity

Present of interest = $ 39,680 * 7.72173

Present of interest = $ 306,398.25

Hence amount received on sale of note (Combined present value )= $ 915,397 ( rounded)

{ $ 608,998.72 + $ 306,398.25 }

Required 2 :

Annuity of value of quarterly deposits = $ 3,679

Explanation :

Future value of $ 248,000 deposit :

Future value = Present value * future value of $ 1

Future value = $ 248,000 * 2.68506

Future value = $ 248,003 (rounded )

Future value of $ 1 , N= 40 Quarterly payments , i= 2.5 % is 2.68506

Hence, Amount to which quarterly deposit must grow = $ 1,612,000 - $ 248,003

Amount to which quarterly deposit must grow = $ 1,363,997

Future value of quarterly deposits :

$ 248,003 = value of quarterly deposits * Future value of annuity

Value of quarterly deposits = $ 248,003 / 67.40255

Value of quarterly deposits = $ 3,679

Future value of Annuity , N= 40 Quarterly payments , i= 2.5 % is 67.40255