[Felix The Cat]

Question
On December 31, 2017, Kayak Co. received a $10,000 note
receivable from Ship, Inc. in exchange for services rendered.
Interest is calculated on the outstanding balance at the interest
rate of 3% compounded annually and payable at maturity. The
note from Ship, Inc. is due in five years. The market interest
rate for similar notes on December 31, 2013, was 8%. The
compound interest factors are as follows:

Future value of $1 due in nine months at 3% 1.0225
Future value of $1 due in f ve years at 3% 1.1593
Present value of $1 due in nine months at 8% .944
Present value of $1 due in f ve years at 8% .680

At what amounts should this note receivable be reported in
Kayak’s December 31, 2017 balance sheet?
a. $6,800
b. $7,820
c. $6,200
d. $7,883”

What I did: PV(5,3%) = Principal / FVfactor

=10000 / 1.1593 = 8625.894937

1. This is answer is wrong, <b> why isn’t this an acceptable answer? </b>
2. They owe us 10000, so if we receive the above 8625 now, then in five years we would have 10000?

Thanks to those that reply!

FTC

[Lidis]

Hello Felix
Note face value=. 10,000
Interest 3% fot 5 years =. 1,500
Matury value of the note = 11,500
11;500*0.680= 7,820
10,000*3%*5= 1,500
You need to find the maturity value of the note and multiply by the present value of $1 due in five years
Lidis

[Felix The Cat]

@Lidis

Ok I but why cant we do:

“=10000 / 1.1593 = 8625.894937?”

[Author]

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