The Town of Snow Lake Issued Debentures Worth $420 000

question 52

Essay

The Town of Snow Lake issued debentures worth $420 000.00 maturing in 15 years to finance construction of recreational facilities. To redeem the debentures, the town council decided to make equal deposits into a sinking fund at the beginning of every three months. Interest earned by the sinking fund is 6.66% compounded quarterly.
a) What is the size of the quarterly payment into the sinking fund?
b) What is the balance in the fund after six years?
c) How much interest is earned by the fund in the 25th payment interval?
d) By how much will the fund increase in the 43rd payment interval?
e) Prepare a partial sinking fund schedule showing details of the first three payments, the last three payments, and totals.

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Definitions:

Fixed Cost

Costs that do not vary with the level of production or sales, such as rent, salaries, and insurance expenses.

Profit-Maximizing

The process or strategy used by businesses to achieve the highest possible profit from their operations, often by optimizing production and pricing.

Marginal Cost

The extra expense incurred for producing an additional unit of output, emphasizing the concept of incremental cost analysis.

Total Profit

The overall financial gain calculated by subtracting total costs from total revenue.