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Wildhorse Inc
Wildhorse Inc. wishes to accumulate $1,430,000 by December 31, 2030, to retire bonds outstanding. The company deposits $220,000 on December 31, 2020, which will earn interest at 10% compounded quarterly, to help in the retirement of this debt. In addition, the company wants to know how much should be deposited at the end of each quarter for 10 years to ensure that $1,430,000 is available at the end of 2030. (The quarterly deposits will also earn at a rate of 10%, compounded quarterly.)
Expert Solution
Computation of the future value of deposits:-
Here,
n = 10*4 = 40 periods (quarterly)
Rate = 12%/4 = 3% (quarterly)
FV of deposits = PV *(1+rate)^n
= $220,000*(1+3%)^40
= $220,000*3.2620
= $717,648.31
Remaining amount = $1,430,000 - $717,648.31
= $712,351.69
We can calculate the quarterly payment by using the following formula in excel:-
=pmt(rate,nper,pv,-fv)
Here,
Pmt = Quarterly payment
Rate = 12%/4 = 3% (quarterly)
Nper = 10*4 40 periods (quarterly)
PV = $0
FV = $712,351.69
Substituting the values in formula:
= pmt(3%,40,0,-712351.69)
= $9,447.48
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