Kate Greenway Corporation, having recently issued a $20 million, 15-year bond issue, is
committed to make annual sinking fund deposits of $620,000. The deposits are made on the last
day of each year and yield a return of 10%. Will the fund at the end of 15 years be sufficient to
retire the bonds? If not, what will the deficiency be? (Round answer to 2 decimal places, e.g.
100,250.20.)
620000*1.1^15-1/.1 = 19698938.65 -20000000 = $301061.35 will be the deficit.
What would you pay for a $100,000 debenture bond that matures in 15 years and pays $10,000 a
year in interest if you wanted to earn a yield of: (Round computations to 2 decimal places, e.g.
15,250.25 and use the rounded amounts to calculate the final answer. Round the final answer to 2
decimal places, e.g. 30,250.25. Hint: Use tables in text.)
(a) 8%
10000/1-1.08^15/.08 + 100000/1.08^15 = 85594.79+31524.17 = $117118.96
(b) 10%
10000/1-1.1^15/.1 + 100000/1.1^15 = 76060.8+23939.2 = $100000
(c) 12%
10000/1-1.12^15/.12 + 100000/1.12^15 = 68108.64+18269.63 = $86378.27
Stephen Bosworth, a super salesman contemplating retirement on his fifty-fifth birthday, decides
to create a fund on an 8% basis that will enable him to withdraw $25,000 per year on June 30,
beginning in 2014 and continuing through 2017. To develop this fund, Stephen intends to make
equal contributions on June 30 of each of the years 2010-2013. (Round all answers to 2 decimal
places, e.g. 10,250.25. Hint: Use tables in text.)
(a) How much must the balance of the fund equal on June 30, 2013, in order for Stephen
Bosworth to satisfy his objective?
25000 x 1-1/1.08^4/.08 = 82803.17
(b) What are each of Stephen's contributions to the fund?
82803.17/1.08^4-1/.08 = 18375.80
Already Tried:
I have read the chapter and tried to figure out the answers, but am not getting it. The book does
not seem to have examples similar to this that I can relate these questions to. I really need for the
work to be shown so I can understand what I am doing wrong.