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Was originally purchased, it cost $90,000. what is the fair value (present value) of the note?

Sagot :

Using an appropriate interest rate, the fair value (present value) of the non-interest-bearing note is $83,055.71.

What is the interest rate?

  • The amount of interest due every period as a percentage of the amount lent, deposited, or borrowed is referred to as the interest rate.
  • The total interest on a lent or borrowed amount is determined by the principal amount, the interest rate, the compounding frequency, and the length of time it is lent deposited, or borrowed.

To find the present value:

  • The present value is the discounted present value of future cash flows.
  • The PV factor or formula is used to calculate the present value.
  • We can also use an online finance calculator to calculate the present value of the note, as shown below.

Data and Calculations:

  • Original cost price = $90,000
  • N (# of periods) = 9 years
  • I/Y (Interest per year) = 11%
  • PMT (Periodic Payment) = $15,000
  • FV (Future Value) = $135,000 ($90, 000 x 9)

So,

Present Value (PV) = $ 83,055.71

Sum of all periodic payments = $135,000.00

Total Interest = $51,944.29

Therefore, using an appropriate interest rate, the fair value (present value) of the non-interest-bearing note is $83,055.71.

Know more about interest rates here:
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The complete question is given below:

Last year the company exchanged a piece of land for a non-interest-bearing note. The note is to be paid at the rate of $15,000 per year for 9 years, beginning one year from the date of disposal of the land. An appropriate rate of interest for the note was 11%. At the time the land was originally purchased, it cost $90,000. What is the fair value (Present value) of the note?

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