If Walker Corporation issues a $1,000,000 three-year noninterest bearing note how much cash will it receive if the interest rate is 10 percent compounded semiannually?

Question

Quizplus · Accepted Answer

To find out how much cash Walker Corporation will receive, we need to calculate the present value of the $1,000,000 note, given that the interest rate is 10 percent compounded semiannually for three years. The formula for the present value of a single sum is PV = FV / (1 + r/n)^(nt), where PV is the present value, FV is the future value ($1,000,000), r is the annual interest rate (0.10), n is the number of compounding periods per year (2 for semiannual), and t is the time in years (3). Plugging in the values, we get PV = $1,000,000 / (1 + 0.10/2)^(2*3) = $1,000,000 / (1.05)^6 ≈ $746,215.

If Walker Corporation Issues a $1,000,000 Three-Year Noninterest Bearing Note