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Chris Fowler borrowed $94,680 on March 1, 2018. This amount plus accrued interest at 10% compounded...

Chris Fowler borrowed $94,680 on March 1, 2018. This amount plus accrued interest at 10% compounded semiannually is to be repaid March 1, 2028. To retire this debt, Chris plans to contribute to a debt retirement fund five equal amounts starting on March 1, 2023, and for the next 4 years. The fund is expected to earn 9% per annum.

How much must be contributed each year by Chris Fowler to provide a fund sufficient to retire the debt on March 1, 2028? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,583.)

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Answer #1

Solution:

Desired future value in debt retirement fund = $94,680 * (1+0.05)^20

= $94,680 * 2.65330 = $251,214

Contribution required in retirement fund annually = $251,214 / Cumulative FV factor at 9% for 5 periods of annuity due

= $251,214 / 6.52333 = $38,510

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