Question

Windsor Inc. wishes to accumulate $1,260,000 by December 31, 2027, to retire bonds outstanding. The company deposits $200,000 on December 31, 2017, which will earn interest at 6% compounded quarterly, to help in the retirement of this debt. In addition, the company wants to know how much should be deposited at the end of each quarter for 10 years to ensure that $1,260,000 is available at the end of 2027. (The quarterly deposits will also earn at a rate of 6%, compounded quarterly.) (Round answer to O decimal places, eg. 458,582.) Annuity of value of quarterly deposits $ e Textbook and Media Windsor loans money to Luck Corporation in the amount of $490,000. Windsor accepts an 6% note due in 6 years with interest payable semiannually. After 2 years (and receipt of interest for 2 years), Windsor needs money and therefore sells the note to Denver National Bank, which demands interest on the note of 8% compounded semiannually. What is the amount Windsor will receive on the sale of the note? (Round answer to O decimal places, e.g. 458,581.) Amount received on sale of note $ e Textbook and Media

Answer 1

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Answer:

1)

Additional amount required at the end of 10 years is caluclated by subtracting initial amount with accumulated amount at the end

where A = P(1+R)^T

1260000-200000*(1+6%/4)^40 = 1047727.29

Then we use this amount to find the additional prinicipal to deposited by the anuity formula:

1047727.29÷(((1+0.06/4)^40-1)÷(0.06/4)) = 256111.4732

2)

The period remaining for bond on the date of sale todenver national bond

= 6 year - 2 year

= 4 years

Amount received by Windsor on the date of sale

= ( semi annual interest × present value annuity factor (4.5%,6)) + ( bond value /(1.045)^6)

= ((490000×3%)*(1-(1.04)^8)/.04)) +

( 490000/(1.04)^8)

= 222589.0744