M351_Notes-Day_5_Bonds_2 - arrows are $1,000 payments and...

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M351 Notes, Class 5: Bonds, pages 685-691 A. Using IRR function in Excel to establish the implicit interest rate—see Day 5 spreadsheet. B. Create a liability table for an installment obligation (probably a note)—see Day 5 spreadsheet. C. Create a liability table for a zero coupon note and allocate interest from note periods to calendar periods—see Day 5 spreadsheet. D. How is the $9,520 on page 688 calculated? 1. Cash Flows: Large up arrow is receipt of $9,520 cash from lender and small down
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Unformatted text preview: arrows are $1,000 payments and large down arrow is payment of $10,000 at maturity. Present value of cash outflows: (PVa, n=3, i=12%)($1,000) + (PVsa, n=3, i=12%)($10,000) = (2.4018 x $10,000) + (.7118 x $10,000) = $9.520 Professor Eskews preferred alternativejust credit notes payable for the newly discounted amount: Cash. ................................................................... 9,520 Notes payable. ............................................. 9,520 1...
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This note was uploaded on 10/14/2009 for the course MGMT 351 taught by Professor Staff during the Spring '08 term at Purdue University-West Lafayette.

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