Novak Inc. loans money to John Kruk Corporation in the amount of $771,200. Novak

Question

Novak Inc. loans money to John Kruk Corporation in the amount of $771,200. Novak accepts an 8% note due in 7 years with interest payable semiannually. After 2 years (and receipt of interest for 2 years), Novak needs money and therefore sells the note to Chicago National Bank, which demands interest on the note of 10% compounded semiannually. What is the amount Novak will receive on the sale of the note? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Explanation / Answer

Amount received on sale of note:-

$771200 x 8% x 6/12 = $30848 x PVAF

          $30848 X 7.7217* = $238200
$771200 x 0.0.6139 = $473440
$238200 + 473440 = $711640

*[(7years - 2years) x 2 = 10, 5%]

Amount received on sale of note = $711640

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