Question

**E6.16 (LO 3) (Retirement of Debt)**

Ricky Fowler borrowed $70,000 on March 1, 2018. This amount plus accrued interest at 6% compounded semiannually is to be repaid March 1, 2028. To retire this debt, Ricky plans to contribute to a debt retirement fund five equal amounts starting on March 1, 2023, and for the next 4 years. The fund is expected to earn 5% per annum.

Instructions

How much must be contributed each year by Ricky Fowler to provide a fund sufficient to retire the debt on March 1, 2028?

please give a explanation this two steps

**The Future value of an annuity due of 1 for 5
period**

**(FVAD) FV of annuity = FV ordinary annuity
*factor**

**
=** 5,525,63 * (1+0,05)

= 5,8019

**Periodic Rent** ($126,428 ÷ 5,8019*) **=
21,791**

Answer #1

Future value of $ 70000 at 6% p.a., ie.6%/2=3% interest compounded semi-annually for 10 yrs.*2=20 semi-annual periods = |

Future value=Present value of loan*(1+interest rate)^ No.of compounding periods |

ie. 70000*(1+0.03)^20= |

126428 |

OR using FV of $1 factor for 20 periods , for r= 3%----1.80611 |

70000*1.80611= |

126428 |

The above sum(126428) is the future value of the total debt retirement funds |

which is 5 beginning-of -the year annuities |

at 5% p.a. |

So, we use Future Value of annuity due(beginning -of-yr.payments) |

which is FV of ordinary annuity factor*(1+r) |

ie.FVOA factor for i=5% & n= 5 is 5.52563 |

so, FVADue factor= 5.52563*1.05= 5.8019 |

Now, FVADue=Pmt.*(FVADue Factor) |

ie.126428=Beg.of yr. pmt*5.8019 |

so, that beg. Of yr. pmt.=126428/5.8019= |

21791 |

(Answer) |

Newman Fowler borrowed $97,390 on March 1, 2018. This amount
plus accrued interest at 6% compounded semiannually is to be repaid
March 1, 2028. To retire this debt, Newman plans to contribute to a
debt retirement fund five equal amounts starting on March 1, 2023,
and for the next 4 years. The fund is expected to earn 5% per
annum.
How much must be contributed each year by Newman Fowler to provide
a fund sufficient to retire the debt on...

Chris Fowler borrowed $92,080 on March 1, 2018. This amount plus
accrued interest at 8% compounded semiannually is to be repaid
March 1, 2028. To retire this debt, Chris plans to contribute to a
debt retirement fund five equal amounts starting on March 1, 2023,
and for the next 4 years. The fund is expected to earn 6% per
annum. Click here to view factor tables How much must be
contributed each year by Chris Fowler to provide a fund...

Steve Fowler borrowed $93,560 on March 1, 2018. This amount plus
accrued interest at 6% compounded semiannually is to be repaid
March 1, 2028. To retire this debt, Steve plans to contribute to a
debt retirement fund five equal amounts starting on March 1, 2023,
and for the next 4 years. The fund is expected to earn 5% per
annum. Click here to view factor tables How much must be
contributed each year by Steve Fowler to provide a fund...

Henry Fowler borrowed $91,380 on March 1, 2015. This amount plus
accrued interest at 6% compounded semiannually is to be repaid
March 1, 2025. To retire this debt, Henry plans to contribute to a
debt retirement fund five equal amounts starting on March 1, 2020,
and for the next 4 years. The fund is expected to earn 5% per
annum. Click here to view factor tables How much must be
contributed each year by Henry Fowler to provide a fund...

Steve Fowler borrowed $97,230 on March 1, 2015. This amount plus
accrued interest at 10% compounded semiannually is to be repaid
March 1, 2025. To retire this debt, Steve plans to contribute to a
debt retirement fund five equal amounts starting on March 1, 2020,
and for the next 4 years. The fund is expected to earn 9% per
annum.
How much must be contributed each year by Steve Fowler to
provide a fund sufficient to retire the debt on...

Exercise 6-16
Morgan Fowler borrowed $91,860 on March 1, 2015. This amount
plus accrued interest at 6% compounded semiannually is to be repaid
March 1, 2025. To retire this debt, Morgan plans to contribute to a
debt retirement fund five equal amounts starting on March 1, 2020,
and for the next 4 years. The fund is expected to earn 5% per
annum.
Click here to view factor tables
How much must be contributed each year by Morgan Fowler to provide...

Steve Milner borrowed $120,000 on July 1, 2020. This amount plus
accrued interest at 8% compounded semiannually is to be repaid in
total on July 1, 2030. To retire this debt, Milner plans to
contribute to a debt retirement fund five equal amounts starting on
July 1, 2025 and continuing for the next four years. The fund is
expected to earn 6% per annum.

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 3 minutes ago

asked 9 minutes ago

asked 10 minutes ago

asked 15 minutes ago

asked 22 minutes ago

asked 29 minutes ago

asked 32 minutes ago

asked 44 minutes ago

asked 52 minutes ago

asked 52 minutes ago

asked 1 hour ago

asked 1 hour ago