QUESTION 20

Kingston Credit Union borrowed $425 000.00 at 6% compounded semi-annually from League Central to build a sports complex. The loan agreement requires payment of interest at the end of every six months. In addition, the credit union is to make equal payments into a sinking fund so that the principal can be retired in total after 11 years. Interest earned by the fund is 4.14% compounded semi-annually..

i) What is the semi-annual interest payment on the debt?

ii) What is the size of the semi-annual deposits into the sinking fund?

iii) What is the total annual cost of the debt?

iv) What is the interest earned by the fund in the 18th payment interval?

v) What is the book value of the debt after six years?