1. ## Sinking Funds

Here's a question for you guys....

A company has borrowed \$225,000 at 13% compounded semi-annually to build an office complex. The loan agreement requires the payment of interest end of every year. In addition, the company is to make equal payments into a sinking fund so that the principal can be retired after fifteen (15) years. Interest earned by the fund is 11% compounded semi-annually.

1. What is the semi-annual interest payment on the debt?
2. What is the size of the semi-annual deposits into the sinking fund?
3. What is the total annual cost of the debt to the company?
4. What is the interest earned by the sinking fund in the 20th payment interval?
5. What is the balance of the fund after the 20th payment is made?
6. What is the book value of the debt after twelve (12) years?

This is what I got so far....

#1 14,625

#2
30 n
225,000 fv
11 I/Y, C/Y + P/Y = 2
comp pmt
3,106.21

#3......

#4 5,484.47

#5 108,308.41

#6.....

Sorry guys if I am not showing my work but I have been asked to learn how to use my financial calculator and that's what I did.

2. > 3: What is the total annual cost of the debt to the company?
225000(1 + .13/2)^2 - 225000

> 6: What is the book value of the debt after twelve (12) years?
225000 - value of s.fund at end 12th year

3. I am doubting myself on #1

this is what i did....225,000 x (13%/2) = 14,625

Is this correct?

4. Originally Posted by petedam
I am doubting myself on #1
this is what i did....225,000 x (13%/2) = 14,625
Is this correct?
It is the CORRECT amount, to be paid exactly every 6 months,
if such is the arrangement.

• Is FV of sinking fund expressed as a negative number?
• How about PMT into sinking fund, is that expressed as (-) number as well?
• What is the interest earned by the sinking fund in the 20th payment interval? is this mean 20th and 21st? which would be = 11,441.44?

5. Originally Posted by petedam
• Is FV of sinking fund expressed as a negative number?
• How about PMT into sinking fund, is that expressed as (-) number as well?
• What is the interest earned by the sinking fund in the 20th payment interval? is this mean 20th and 21st? which would be = 11,441.44?
1st 2 questions: depends on your calculator; check the manual

Last question: whatever it means, it's for 6 months. If "interval" means before payment, then:
the interest during 20th payment interval is balance at end of 19th payment times .055