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Margarita
10 days ago
15

2. The city of Glendale borrows $48 million by issuing municipal bonds to help build the Arizona Cardinals football stadium. It

plans to set up a sinking fund that will repay the loan at the end of 10 years. Assume a 4 percent interest rate per year. What should the city place into the fund at the end of each year to have $48 million in the account to pay back their bondholders?
Business
1 answer:
soldi70 [3.4K]10 days ago
3 0

Response:

$5,917,965.66 annually

Clarification:

The sum of $48 million accounts for the total of all annuities after a decade. To determine how much the city of Glendale must allocate each year, we use the present value of annuity equation, outlined below.

P   = PV ×  r / 1 − (1+r)−n

Where P is the payment amount

PV = present value of annuity: $48,000,000.00

r = interest rate: 4 % = 0.04

n: number of periods: 10

P = $48,000,000 x {0.04/(1-(1+0.04)-10}

P = $48,000,000 x {0.04/ 1-0.6755641688)

P =$48,000,000x (0.04/0.3244358312)

P= $48,000,000 x 0.123290951

P= 5,917,965.66 per year

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