Computing Future Values (Supplement C)
On January 1, 2011. Spearfish Company completed the following transactions (use an 8 percent annual interest rate for all transactions):
a. Deposited $50,000 in a debt retirement fund. Interest will be computed at six-month intervals and added to the fund at those times (i.e., semiannual compounding). (Hint: Think carefully about n and i.)
b. Established a pension retirement fund to be available by the end of year 6 by making six annual deposits of $130,000 at year-end. starting on December 31, 2011.
c. Deposited $250,000 in a debt retirement fund. Interest will be computed annually and added to the fund at those times.
Required:
1. In transaction (a), what will be the balance in the fund at the end of year 3? What is the total amount of interest revenue that will be earned?
2. In transaction (b), what is the amount of the retirement fund at the end of year 6? What is the total amount of interest revenue that will be earned?
3. In transaction (c). what will be the balance in the fund at the end of year 6? What is the total amount of interest revenue that will be earned?
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