[15 POINTS] Retirement of debt. (Tables needed.) Steve Milner borrowed $120,000

Question

[15 POINTS] Retirement of debt. (Tables needed.) Steve Milner borrowed $120,000 on July 1, 2017. This amount plus accrued interest at 8% compounded semiannually is to be repaid in total on July 1, 2027. To retire this debt, Milner plans to contribute to a debt retirement fund five equal amounts starting on July 1, 2022 and continuing for the next four years. The fund is expected to earn 6% per annum. Instructions Compute how much must be contributed each year by Steve Milner to provide a fund sufficient to retire the debt on July 1, 2027?

Explanation / Answer

Amount to be repaid = $120000 x (1+0.04)20

= $120000 x 1.0420

= $262935

Amount to be contributed per year from July 1, 2022 to July 1, 2027

= [FV (r)]/ [(1+r)n - 1]

= [(262935) (0.06)] / [(1+0.06)5 - 1]

= $46644

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