The town of Mount Hope is financing a $4.5 million upgrade to its water system through the province’s Municipal Finance Authority. The MFA obtained financing via a bond issue with interest at 7.5% per annum payable semiannually. Also, at the end of every six months, the town is to make equal payments into a sinking fund administered by the MFA so that the necessary funds will be available to repay the $4.5 million debt when it matures in 17 years. The sinking fund earns 4% compounded semiannually. Round the sinking fund payments and periodic interest earnings to the nearest dollar.
a. Calculate the size of the sinking fund payments. b. How much will the fund increase in the eighteenth payment interval?
c. How much interest will the fund earn in the tenth year?
d. Construct a partial sinking fund schedule showing details of the ninth, tenth, and last two payments, and the total of the interest earned.