Trader Trust accepts a $600,000 non-interest bearing 20-year note from Coffee Co. in exchange for cash on 1/1/19. Coffee Co. promises to repay $600,000 at maturity. The market rate on 1/1/19 was 4%. How much cash will Trader loan Coffee in exchange for this note?

Question

Quizplus · Accepted Answer

The present value of the note is calculated using the formula for the present value of a single sum: PV = FV / (1 + r)^n. Here, FV = $600,000, r = 4% (0.04), and n = 20 years. The calculation gives approximately $273,832.

Trader Trust Accepts a $600,000 Non-Interest Bearing 20-Year Note from Coffee