At the Beginning of 2017, Lisa Co

question 73

Essay

At the beginning of 2017, Lisa Co. issued bonds with a face value of $700,000 due on December 31, 2023. The company desires to accumulate a fund to retire these bonds at maturity by making equal annual deposits beginning on December 31, 2017.
Required:
Compute the amount that the company must deposit at the end of each year, assuming that the fund will earn 10%
interest a year compounded annually and seven deposits are made.

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Definitions:

Income Stream

A regular flow of money from an investment, property, or other financial assets.

Real Interest Rate

The interest rate adjusted for inflation, reflecting the real cost of borrowing or the real yield on savings.

Perfect Substitute

Two or more goods that can be used interchangeably with no loss of utility by the consumer.

Consumption

The process or activity of using goods and services, reflecting the end-use of products that directly satisfies human needs or desires.