   Chapter 12.III, Problem 13RE ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447

#### Solutions

Chapter
Section ### Contemporary Mathematics for Busin...

8th Edition
Robert Brechner + 1 other
ISBN: 9781305585447
Textbook Problem

# Solve the following exercises by using tables.Green Thumb Landscaping buys new lawn equipment every 3 years. It is estimated that $25,000 will be needed for the next purchase. The company sets up a sinking fund to save for this obligation.a. What equal payments must be deposited every 6 months if interest is 8% compounded semiannually?b. What is the total amount of interest earned by the sinking fund? (a) To determine To calculate: The amount of sinking fund payment required to be deposited at the end of every 6 months at 8% interest compounded semiannually by Green thumb to accumulate for the new purchase of lawn equipment of$25,000 in 3 years.

Explanation

Given Information:

Payment frequency is 6 months, time duration is 3 years, nominal rate of return is 8% and interest is compounded semiannually and future value amount of loan is $25,000. Formula used: The formula to compute the sinking fund payment is, Sinking fund payment=Future value of sinking fundFuture value table factor Calculation: Consider that Payment frequency is 6 months, time duration is 3 years, nominal rate of return is 8% and interest is compounded semiannually and future value amount of loan is$25,000.

The rate period is 4% or 0.04(8%÷2 period per year).

The number of periods is 6(3 years×2 period per year)

(b)

To determine

To calculate: The amount of total interest where fund payment required to be deposited at the end of every 6 months at 8% interest compounded semiannually by Green thumb to accumulate for the new purchase of lawn equipment of \$25,000 in 3 years.

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