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QUESTION 7 (6 marks) Martha's Widget Factory borrows $500,000 from Harry Loanshark to buy a new widget maker. Martha agrees to pay interest to Harry
QUESTION 7 (6 marks) Martha's Widget Factory borrows $500,000 from Harry Loanshark to buy a new widget maker. Martha agrees to pay interest to Harry every year at a rate of 12.0% effective with no repayment of principal until the end of ten years, when the full $500,000 is to repaid. Martha also agrees to make quarterly payments into Harry's Friendly Investment Fund in order to accumulate the $500,000 needed to repay the loan at the end of the ten years. a) How much interest will Martha pay to Harry each year? (2) b) If Harry's Friendly Investment Fund pays 5.0% compounded quarterly, what is the size of the quarterly payments that Martha will make to the fund? (4)
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