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Math Help - Sinking Fund Troubles - Please help!

  1. #1
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    Sinking Fund Troubles - Please help!

    Hi Guys,

    This is my first time in this forum. I'm taking business math and am having little trouble. That is, until I encountered sinking funds. My textbook has almost no information! Can anyone give me any tips on this question?

    Harold signed a note for $5,000 and agreed to repay the note by one payment in 15 months. He also agreed to pay interest on the note every three months at the rate of 10.125%, compounded semi-annually. If Harold uses a sinking fund paying 18 percent, compounded quarterly, to accumulate the money to repay the face value of the note, answer the following questions. Assume the payments to the sinking fund are quarterly.

    a) Find the total cost of the debt to Harold
    b) Construct a sinking fund schedule for the debt.

    I feel like such a ditz for not knowing how to do this! Thank you so much for all your help!
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  2. #2
    MHF Contributor
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    It appears to me that the interest payment is the only tricky part.

    Quote Originally Posted by Amber Whittaker View Post
    pay interest on the note every three months at the rate of 10.125%, compounded semi-annually.
    i-annual-nominal = 0.10125
    i-semi-effective = 0.10125/2 = 0.050625
    i-quarterly-effective = [(1 + 0.050625)^(1/2)] - 1

    You're almost done.
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