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How discounted is that note really? Part 4

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Note: You can use any financial calculator to do this problem, but if you want the BEST, you can get our 10bii Financial Calculator for iOS, Android, Mac, and Windows!

Okay, time for part 4.  To recap, the scenario from Part 1, Part 2, and Part 3 is as follows:


I came across a note for sale.  The terms of the note are as follows:

Original balance: $6,000

Unpaid balance as of June 2: $4,560

Term: 5 years

Interest Rate: 0

Payments: $100 per month

If I buy it, make the purchase on June 2, and the first payment I'll receive will be the July payment.

Every February, the borrower pays off $1,000 in order to accelerate the note paydown.


The current owner of the note wants to sell me the note for 15% off its face value (85% of $4,560 = $3,876).

If I buy, what will my yield be if the borrower pays normally and also includes his extra lum-sum payment every February?


Going back to the previous Uneven Cashflow setup from Part 2, the only thing I change is my Initial Cashflow.  

I change it to -$3,876 and solve for IRR/YR.  

Graphically, that looks like this:

And the cashflow diagram looks like this:

Doing so, I find that my yield is 15.24%, as you can see:  

Buying at a discount really makes a difference, as might be expected!