Reference no: EM132831899
Question - HELLO Company received a seven-year, 12%-interest bearing note on February 22, 2019. In exchange for property it sold to HI Company. There was no established exchange price for the property and the note has no ready market. The prevailing rate of interest for a note of this type was 10% on January 1, 2019, 9.5% on February 22, 2019, 10.5% on December 31, 2019; 11% on February 22, 2020 and 9% on December 31, 2020.
1. What interest rate should be used to calculate the interest revenue from this transaction for the years ended December 31, 2019 and 2020 respectively?
a. 12% and 12%
b. 9.5% and 9.5%
c. 10% and 12%
d. 9.5% and 11%
e. 10.5% and 9%
2. What interest rate should be used to calculate the nominal interest from this transaction for the years ended December 31, 2019 and 2020 respectively?
a. 12% and 12%
b. 9.5% and 9.5%
c. 10% and 12%
d. 9.5% and 11%
e. 10.5% and 9%
The face value of the note must be
a. Higher than its present value
b. Lower than the present value
c. Equal to its present value
d. Zero.
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