The Cochrane Board of Education financed the acquisition of a new school site through a $400 000 long-term promissory note due in 17 years. Interest on the promissory note is 7.25% compounded semi-annually and is payable at the end of every six months. To provide for the redemption of the note, the board agreed to make equal payments at the end of every six months into a sinking fund paying 5% compounded semi-annually.
a) What is the semi-annual interest payment?
b) What is the size of the semi-annual payment into the sinking fund?
c) What is the annual cost of the debt?
d) Compute the book value of the debt after 3 years.
e) Compute the increase in the sinking fund in the 37th payment interval.
f) Construct a partial sinking fund schedule showing details, including the book value of the debt, for the first three years, the last three years, and totals.

Question

Quizplus · Accepted Answer

The Answer of The Cochrane Board of Education financed the acquisition of a new school site through a $400 000 long-term promissory note due in 17 years. Interest on the promissory note is 7.25% compounded semi-annually and is payable at the end of every six months. To provide for the redemption of the note, the board agreed to make equal payments at the end of every six months into a sinking fund paying 5% compounded semi-annually.
a) What is the semi-annual interest payment?
b) What is the size of the semi-annual payment into the sinking fund?
c) What is the annual cost of the debt?
d) Compute the book value of the debt after 3 years.
e) Compute the increase in the sinking fund in the 37th payment interval.
f) Construct a partial sinking fund schedule showing details, including the book value of the debt, for the first three years, the last three years, and totals.

The Cochrane Board of Education Financed the Acquisition of a New