Question

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 March 1, 2025? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,583.) Annual contribution to debt retirement fund

Annual contribution to debt retirement fund $______

Answer #1

Solution:

Firstly we need to compute the amount to be repaid for loan on march 1, 2025.

Future value = $97,230(1+0.10/2)^{20} = $257,980.14

Now, since Steve wants to discharge this amount at march1, 2025 then his accumulated amount in 5 year (from march1,2020 to march1,2025) in the debt retirement fund must be equal to the above amount.

It's mean this is also the future value of annual contribution toward debt retirement fund.

therefore, Future value of annuity = Annual contribution
({(1+i)^{n} - 1 } / i) * (1 + i)

$257,980.14 = Annual contribution **(**
{(1.09)^{5} - 1 } /0.09**)** * (1.09)

Thus, **Annual contribution** = $257,980.14 /
6.5233346= **$39,547** (Rounded off)

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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...

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
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Chris Fowler borrowed $92,080 on March 1, 2018. This amount plus
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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
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March 1, 2028. To retire this debt, Newman plans to contribute to a
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and for the next 4 years. The fund is expected to earn 5% per
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July 1, 2025 and continuing for the next four years. The fund is
expected to earn 6% per annum.

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
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Bob Smith borrowed $200,000 on January 1, 2015. The interest
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