Question

To redeem a $11 000.00 promissory note due in 12 years, SEJE has set up a sinking fund earning 8% compounded semi-annually. Equal deposits are made at the beginning of every six months.

What is the size of the semi-annual deposits?
A. $132.87
B. $2201.75
C. $246.03
D. $568.22

Answer 1

The size of the semi-annual deposits to redeem the promissory note is approximately $246.03.

Step-by-step explanation:

To calculate the size of the semi-annual deposits, we can use the formula for the present value of an annuity.

The formula is:

PV = PMT * ((1 - (1 + r)^(-n)) / r)

Where PV is the present value (the amount of the promissory note), PMT is the size of the semi-annual deposits, r is the interest rate per period (8% / 2 = 4% = 0.04), and n is the number of periods (12 years * 2 = 24).

Substituting the values into the formula, we have:

11,000 = PMT * ((1 - (1 + 0.04)^(-24)) / 0.04)

Solving for PMT gives us:

PMT ≈ $246.03

Therefore, the size of the semi-annual deposits is approximately $246.03.