To redeem a $100,000 promissory note due in 12 years. Flinstone Inc. has set up a sinking fund earning 7.25% compounded semi-annually. Equal deposits are made at the beginning of every six months.
What is the size of the semi-annual deposits?
How much of the maturity value of the fund is deposits?
How much is interest?
So far this is what I worked out for 1st question.
FV=100,000 P/Y=2 C/Y=2 n=12(2) I/Y=7.25 i=7.25/2 =3.625 =.03625
100,000=PMT (1.03625^24-1/.03625)
100,000=PMT(37.25349873)
PMT=2684.311633 Correct answer is 2590.41 could this be a rounding issue?
(2590.42)(24) = 62169.84
100,000-62,169.84 = 37,830.16
So then maturity value is 62,169.84 and interest is 37,830.16 so the semi-annual deposits would be 2590.41. I can get 2590.42 using financial calculator but I need to show my work in long form. Could someone please check where I went wrong in first part of Question? Thanks
What is the size of the semi-annual deposits?
How much of the maturity value of the fund is deposits?
How much is interest?
So far this is what I worked out for 1st question.
FV=100,000 P/Y=2 C/Y=2 n=12(2) I/Y=7.25 i=7.25/2 =3.625 =.03625
100,000=PMT (1.03625^24-1/.03625)
100,000=PMT(37.25349873)
PMT=2684.311633 Correct answer is 2590.41 could this be a rounding issue?
(2590.42)(24) = 62169.84
100,000-62,169.84 = 37,830.16
So then maturity value is 62,169.84 and interest is 37,830.16 so the semi-annual deposits would be 2590.41. I can get 2590.42 using financial calculator but I need to show my work in long form. Could someone please check where I went wrong in first part of Question? Thanks