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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Future Values

Palmer Transit Company invested 570,000 in a tax-anticipation note on June 30,2020. The note earns 12% interest compounded monthly (1% per month) and matures on March 31, 2021.

Required:

Note: Round answers to two decimal places.

1. Prepare the cash flow diagram for this investment.

2. Determine the amount Palmer will receive when the note matures.

3. Determine how much interest Palmer will earn on this investment from June 30, 2020, through December 31, 2020.

To determine

(a)

Introduction:

The future value of amount includes the compound interest and the initial cash flow. It considers the time value of money.

To prepare:

Cash Flow for investments.

Explanation

Investment Date = June 30, 2020

Cashflow = $70,000

Interest = 12% p.a.

Maturity Date = March 31, ...

To determine

(b)

Introduction:

Investment in debt security (available for sale securities and trading securities) as well as equity securities is recorded using Fair Value Method.

To calculate:

The value of investment at maturity.

To determine

(c)

Introduction:

Investment in debt security (available for sale securities and trading securities) as well as equity securities is recorded using Fair Value Method.

To compute:

The amount of interest earned on the investment until Dec 31, 2020.

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