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# Bonds- Sinking Funds

Problem 1: Gordon company issued \$1,000,000 10 year bonds and agreed to make annual sinking fund deposits of \$80,000.00. the deposit are made at the end of each year into an account paying 5% annual intrest. What amount will be in the sinking fund at the end of 10 years?

Problem 2: Galway Bay Enterprises issued 10%,8 year, \$2,000.00 par value bonds that pay interest semiannually on October 1 and April1. The bonds are dated April 1.2002, and are issued on that date. The discount rate of interest for such bond on April 1,2002, is 12%. What cash proceeds did Galway Bay received from issuance of the bond?

#### Solution Preview

Note: For the following answers the abbreviations have the following meanings

PVIF= Present Value Interest Factor
PVIFA= Present Value Interest Factor for an Annuity
FVIF= Future Value Interest Factor
FVIFA= Future Value Interest Factor for an Annuity

They can be read from tables or calculated using the following equations
PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%
PVIF( n, r%)= =1/(1+r%)^n
FVIF( n, r%)= =(1+r%)^n
FVIFA( n, r%)= =[(1+r%)^n -1]/r%

1 Gordon company issued \$1,000,000 10 year bonds and agreed to make annual ...

#### Solution Summary

Calculates amount in the sinking fund and the proceeds from the issue of bonds.

\$2.19