A city issues $100,000 worth of bonds,redeemable at par and paying interest at j₂ = 7%.A sinking fund,earning j₂ = 11%,is created to pay for the redemption of the bonds.The semi-annual cost of the debt is $6367.93.What is the book value of the debt at the end of 6 years?

Question

Quizplus · Accepted Answer

The book value of the debt is calculated by subtracting the accumulated value of the sinking fund from the redemption value of the bonds. The accumulated value of the sinking fund after 6 years can be calculated using the sinking fund interest rate and the semi-annual payment. Subtracting this from the redemption value gives the book value.

A City Issues $100,000 Worth of Bonds,redeemable at Par and Paying