Spielberg Inc. signed a $170,000 noninterest-bearing note due in five years from a production company eager to do business. Comp

Question

3 years ago

15

arable borrowings have carried an 11% interest rate. What is the value of this debt at its inception?
A. $210,900B. $190,000C. $112,755D. $101,582

1 answer:

GaryK [48] · Answer 1 · 2022-03-31T17:50:30+03:00

Answer:

$100,890

Explanation:

To determine the value of the debt we must calculate the present value of the note:

present value = future value of the note / (1 + interest rate)⁵

present value = $170,000 / (1 + 11%)⁵ = $170,000 / 1.11⁵ = $170,000 / 1.685

present value = $100,890