Level 1
Chapter 12 – Section III – Exercise 12
Jennifer Kaufman bought a used Toyota Prius for $15,500. She made a $2,500 down payment and
is financing the balance at the Mid-South Bank over a 3-year period at 12% interest.
As her banker, calculate what equal monthly payments will be required by Melissa to
amortize the car loan.
Number of years = 3
Level 2
Chapter 12 – Section III – Exercise 13
Green Thumb Landscaping buys new lawn equipment every 3 years. It is estimated
that $25,000 will be needed for the next purchase. The company sets up a sinking
fund to save for this obligation.
a. What equal payments must be deposited every 6 months if interest is 8%
compounded semiannually?
Note: Use Excel’s Round function to calculate the payment. Then use this
rounded value for your calculations in part b.
b. What is the total amount of interest earned by the sinking fund?
Level 3
Chapter 12 – Section III – Exercise 14
Paul and Donna Kelsch are planning a Mediterranean cruise in 4 years and will
need $7,500 for the trip. He decides to set up a sinking fund savings account for the
vacation. He intends to make regular payments at the end of each 3-month period
into the account that pays 6% interest compounded quarterly. What periodic sinking
fund payment will allow them to achieve their vacation goal?
Level 2
Chapter 12 – Section III – Exercise 22
Turnberry Manufacturing has determined that it will need $500,000 in 8 years for a new
roof on its southeastern regional warehouse. A sinking fund is established for the roof at
3.4% compounded semiannually. What equal payments are required every 6 months to
accumulate the needed funds for the roof?
Level 3
Chapter 12 – Section III – Exercise 23
Randy Scott purchased a motorcycle for $8,500 with a loan amortized over 5 years at
7.2% interest. What equal monthly payments are required to amortize this loan?
Loan value = $8,500
Level 1
Chapter 12 – Section III – Exercise 26
You are the vice president of finance for Neptune Enterprises, Inc., a manufacturer
of scuba diving gear. The company is planning a major plant expansion in 5 years. You
have decided to start a sinking fund to accumulate the funds necessary for the project.
Your company‘s investments yield 8% compounded quarterly. It is estimated that $2,000,000 in
today‘s dollars will be required; however, the inflation rate on construction costs and
plant equipment is expected to average 5% per year for the next 5 years.
a. Use the compound interest concept from Chapter 11 to determine how much will
be required for the project, taking inflation into account.
b. What sinking fund payments will be required at the end of every 3-month period to
accumulate the necessary funds?
Level 2
Chapter 12 – Assessment Test – Exercise 17
A sinking fund is established by Infinity, Inc., at 8% interest compounded semiannually to
meet a financial obligation of $1,800,000 in 4 years.
a. What periodic sinking fund payment is required every 6 months to reach the company‘s
goal?
b. How much greater would the payment be if the interest rate was 6% compounded semian-
nually rather than 8%?
Level 3
Chapter 12 – Assessment Test – Exercise 18
Aaron Grider buys a home for $120,500. After a 15% down payment, the balance is
financed at 8% interest for 9 years.
a. What equal quarterly payments will be required to amortize this mortgage loan?
Note: Use Excel’s Round function to calculate the payment. Then use this
rounded value for your calculations in part b.
b. What is the total amount of interest Aaron will pay on the loan?
Level 2
Chapter 12 – Assessment Test – Exercise 33
The town of Bay Harbor is planning to buy five new hybrid police cars in 4 years. The cars
are expected to cost $38,500 each.
a. What equal quarterly payments must the city deposit into a sinking fund at 3.5% interest
compounded quarterly to achieve its goal?
Cost of cars = $192,500
b. What is the total amount of interest earned in the account?
Level 3
Chapter 12 – Assessment Test – Exercise 35
Sandpiper Savings & Loan is offering mortgages at 7.32% interest. What monthly payments
would be required to amortize a loan of $200,000 for 25 years?