Question :

Problem 1: On 1/1/12 your client received a 14 year note for $550,000 in exchange for services rendered. The note calls for an annual payment of interest on 12/31 at a contractual (stated) rate of 10%. Provided the credit standing of the customer, an interest rate of 12.25% has been imputed as the effectual rate. The principal amount of the note is due at maturity.

Required:

* Part A- At what amount could the sale be recorded on 1/1/12? NOTE: Enter the data above in four cells, and then use the suitable financial function in your software to evaluate present value, rather than formulas from present value tables. The PV cell(s) could reference only data cells, not show actual amounts.

* Part B- Prepare an amortization schedule for the Note Receivable using the subsequent columns:

Date      Cash Received   Interest Revenue

Discount Amortized        Carrying Value

Problem 2: Repeat Problem 1 requirements, considering that the note is for $825,000 and matures in 12 years, with a stated interest rate of 5 percent and an effective yield of 12%. If Problem 1 was done proficiently, only 4 data cells (and 2 rows) should need to be changed. If not, redo Problem 1 so that it can be effortlessly modified for different face values, stated (cash) interest rates, maturities, and/or effective interest rates.

Graphing Problem: For Problem 1 only, purpose a line graph showing three separate lines on one graph for: (1) the cash received, (2) interest revenue, and (3) the discount amortized for each of the 14 years. Add a heading and label each line and axis; show actual dates (12/31/12, 12/31/13, etc.) on the horizontal axis.