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    Compound interest

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    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?

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    Solution Preview

    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 ...

    Solution Summary

    This determines the size of quarterly payments for a given fund.