Question

A man borrowed $300 000 with interest at the rate of 6% compounded semi-annually. He agrees...

A man borrowed $300 000 with interest at the rate of 6% compounded semi-annually. He agrees to discharge his obligations by paying a series of 8 equal payments , the first being due at the end of 5 ½ years. Find the semi-annual payments.

*CASH FLOW Diagram Needed

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Answer #1

Cash flow diagram

Given data:

Borrowing = $300000

Interest rate = 6% compounded semi-annually =6%/2 = 3% semi-annually

Series of payments = A =?

To estimate the value of A we need to equate the present worth of the borrowing to the present worth of the series of payments

300000 = A(P/A,3%,8)(P/F,3%,10)

Using Discrete compound interest factor tables

300000 = A(7.020)(0.7441)

A = 300000 / ((7.020)(0.7441))

A = $57431.85

The semi-annual payments will be worth $57431.85

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