My corporation loans money to a subsidiary, in the amount of $600,000. We accept an 8% note due in 7 yrs. with interest payable semi-annually. After 2 yrs. (and receipt of interest for 2 yrs), we need money, therefore we sell the note to Bank of America, which demands interest on the note of 10% compounded semi-annually. What is the amount we will receive on the sale of the note? (Do not use financial calculator.)
The nature of the note is similar to bonds, therefore, we will use the bond formula to find the price of the note as follows: -
where B is ...
This solution is comprised of a detailed calculation to find the amount they will receive on the sale of the note.