Question

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.

Answer 1

Amount to be repaid on July 1, 2030:

Future value = $ 120,000 X Future value of annuity (4%,20periods) = 120,000 * 2.19112 = $ 262,934.4

Amount of annual contribution to retirement fund:

Future value of ordinary annuity of 1 for 5 periods at 6%	5.63709
X    (1+i)	1.06
Future value of annuity due of 1 for 5 periods at 6%	5.97532
Future value of an annuity due = Rent × FVF-Annuity due Or, 262,934.40 = Rent × 5.97532\ Or, rent = $ 44,003.40

Note that since it is semi-annual, rate = 8%/2 =4% and period = 10*2 = 20 periods