Footnote information:
The fair market value of the notes was estimated by discounting the future cash flows using current rates available to similar borrowers under similar circumstances.
All notes receivable bear interest at 5% to 12% and require future principal payments of approximately $683,750 in 2011, $4,677,500 in 2012, $1,268,750 in 2013, $853,750 in 2014, $826,250 in 2015, and $31,691,250 thereafter. The current portion of these long-term notes is included in other receivables in the consolidated balance sheets.
Required:
1. Estimate the average term of the notes and the interest rates at which these notes were issued by customers of Rawlins.
2. Why would the interest rates vary so much?
3. Are the stated rate and the prevailing market rate of interest similar or quite different at the date of issue?
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