Bill borrows $1000 at 5% compounded annually. He is able to establish a sinking fund to pay off the debt and interest in 7 years. The sinking fund will earn 8% compounded quarterly. What should be the size of the quarterly payments into the fund?
The quarterly rate is 8%/4=2%=0.02.
Now solve the problem.
The debt and interest after 7 years is:
Suppose the size of the quarterly ...
This determines the size of quarterly payments for a given fund.