Company purchased $60,000 of Stanton Company’s 12% bonds at 100 plus accrued interest of $2,400. On June 30, Pierce received its
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Answer:
Henry shall invest $3,018 at present to get $2,000 at each year end for 2 years.
Explanation:
Provided interest rate = 12%
Payment to be made is at the end of year 2 and at the end of year 3
Because it is provided that the payment has to be made at the end of next two years,
Therefore,
Present value interest factor (PVIF) @ 12% for second and third year will be considered.
As today we are at beginning of year 1
First payment will be made at end of next year that is year 2
Second payment at end of third year that is year 3
PVIF
Year 2 = = 0.797
2,000 = $1,594
Year 3 = = 0.712
2,000 = $1,424
Present value of investment = $1,594 + $1,424 = $3,018
Final Answer
Henry shall invest $3,018 at present to get $2,000 at each year end for 2 years.