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KATRIN_1 [288]
3 years ago
5

On June 1, 2018, Dirty Harry Co. borrowed cash by issuing a 6-month noninterest-bearing note with a maturity value of $560,000 a

nd a discount rate of 5%. Assuming straight-line amortization of the discount, what is the carrying value of the note as of September 30, 2018?
Business
1 answer:
Novay_Z [31]3 years ago
8 0

Answer:

PV 550,506.64

Explanation:

Nominal \times (1 - \: discount \: rate)^{time} = \: Present \: Value

560,000 \times \: (1-0.05)^{4/12} = PV

<em>PV = 550,506.64</em>

<u>We can convert the discount rate to interest rate and reach the same value:</u>

i= \frac{d}{1-d} = 0.05/0.95 = 0.052631578

\frac{Nominal}{(1+rate)^{time}} = PV

\frac{560,000}{(1+0.052631578)^{1/3}} = PV

<em>PV = 550,506.64</em>

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