Problem: Consider the following descriptions of four different notes.

Required:

1. Describe each note in the following terms: interest-bearing or zero-interest-bearing; if interest-bearing, at a premium, discount, or at face; and payment-based or lump sum repayment of principle
2. Create a cash flow timeline of the cash flows generated by each note.
3. Calculate the service revenue to be recorded upon inception of each note.
4. For ONE of the four notes (of your choice, create an amortization schedule detailing the cash paid out and interest recorded at each time period over the life of the note.

Note 1:ABC will require XYZ to pay a down payment of $8,000 at 12/31/Y1 and the remainder in the form of a $40,000 note, at 6% interest, due 12/31/Y6. Interest will be due semi-annually. The prevailing market rate at the time of issuance is 3%.

Note 2: ABC will provide the service for XYZ in exchange for a $40,000 non-interest bearing note, to be paid at the end of 6 years. The prevailing market rate at the time of issuance is 6%.

Note 3: ABC will provide the service for XYZ in exchange for a $30,000 non-interest bearing note, with equal payments made at the end of each of the next 6 years. The first payment will be made 12/31/Y2. The prevailing market rate at the time of issuance is 6%.

Note 4: ABC will provide the service for XYZ in exchange for a five year, $30,000, 6% note, with payments made monthly. The first payment will be made at the end of the next month. The prevailing market rate at the time of issuance is 6%.