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Class5-LTD2 - 1 Cash Flows Large up arrow is receipt of...

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M351 Notes, Class 5: Bonds, pages 685-691 Today’s topics Setting up a liability table for a note How would the liability table be different if there is no large payment at maturity? (example: face value=0 for a mortgage) Imputed interest rates 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?
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Unformatted text preview: 1. Cash Flows: Large up arrow is receipt of $9,520 cash from lender and small down 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 1 MGMT 351’s preferred alternative—just credit notes payable for the newly discounted amount: Cash. ................................................................... 9,520 Notes payable. ............................................. 9,520 2...
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