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A Company Is Setting Up a Sinking Fund to Pay

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A company is setting up a sinking fund to pay off $8,654,000 in bonds that are due in 7 years. The fund will earn 7% interest, and the company intends to put away a series of equal year-end amounts for 7 years. What is the amount of the annual deposits that the company must make?


Definitions:

Perfectly Elastic

Describes a situation in market demand or supply where quantity demanded or supplied changes infinitely in response to even a tiny change in price.

Optimal R&D

The most efficient level of investment in research and development activities where marginal costs equal marginal benefits, maximizing net benefits.

Expected-Rate-Of-Return

The anticipated return on an investment, predicting future profit or loss.

Interest-Rate Cost-Of-Funds

The cost incurred by a financial institution to acquire the funds that it lends out to its customers, which is often influenced by prevailing market interest rates.

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