CFA Practice Question

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CFA Practice Question

On March 15th, 2016, Hyatt Company sold goods in exchange for a $20,000, 8% note receivable. The note required that 5 annual payments of $5,009 be made. The present value of the note (using a market rate of 9%) equaled the fair market value of the goods: $19,485. What is the total amount of interest revenue to be recorded by Hyatt over the life of this note?

A. $5,045
B. $5,560
C. $8,000
Correct Answer: B

The total interest revenue to be recorded over the life of the note is the difference between the total annual payments received ($25,045) and the present value of the note ($19,485) on the exchange date. The face value of the 8% note is not relevant here.

User Contributed Comments 5

User Comment
wldu how to get 25,045?
wldu oh, 5 X 5009
sonerdem tricky!
johntan1979 This is the kind of questions that's gonna kill us in the CFA exam :(

I really wonder the practicality of testing us this way... and how useful is this in reality.
gill15 I agree with johntan. This isnt even a bond. When you notice notes or something I guess they can pay however they like. Here the payments are all 5009 each year unlike a bond where each year there is a small coupon payment + Principal at the end.
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