Trader Trust accepts a $500,000 non-interest bearing 10-year note from Coffee Co.in exchange for Cash on 1/1/16.Coffee Co.promises to repay $500,000 at maturity.The market rate on 1/1/16 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 market rate of 4% over 10 years. The formula for present value is PV = FV / (1 + r)^n, where FV is the future value ($500,000), r is the rate (0.04), and n is the number of periods (10). This results in approximately $337,782.

Trader Trust Accepts a $500,000 Non-Interest Bearing 10-Year Note from Coffee