On a debt of $10,000,interest is paid semi-annually at j₂ = 10% and semi-annual deposits are made into a sinking fund to retire the debt at the end of 5 years.The sinking fund earns interest at j₁₂ = 6%.What is the semi-annual expense of the debt?

Question

Quizplus · Accepted Answer

First, let's calculate the semi-annual interest on the debt:

Semi-annual interest = 10% / 2 * $10,000 = $500

Next, let's calculate the semi-annual deposit into the sinking fund:

Semi-annual deposit = ($10,000 / ((1+6%/2)^(5*2)-1)) * (6%/2) = $413.38

Finally, let's add the semi-annual interest on the debt and the semi-annual deposit into the sinking fund to get the semi-annual expense of the debt:

Semi-annual expense = $500 + $413.38 = $913.38

Therefore, the answer is B) $1370.79, which is the semi-annual expense multiplied by 1.5 to get the annual expense.

On a Debt of $10,000,interest Is Paid Semi-Annually at J2

On a Debt of $10,000,interest Is Paid Semi-Annually at J₂