You are chairperson of the investment fund for the Continental Soccer League. Yo

Question

You are chairperson of the investment fund for the Continental Soccer League. You are asked to set up a ftund of semiannual payments to be compounded semiannually to accumulate a sum of $220,000 after nine years at a 12 percent annual rate (18 payments). The frst payment into the fund is to take place six months from the end ofthe ninth year. Use AppendixA and AppendixC for an appromate answer, but calculate your final answer using the ormula and finanoal calaitr methods. a. Determine how much the semiannual payment should be. (Do not round intermediate calculations. Round your final answer to 2 decimal places) Sem-anrual payment On the day after the south payment is made (the beginning of the fourth year), the interest rate goes up to an annual rate of 14 percent. This new rate applies to the funds that have been accumulated as weil as all fubure payments into the fund. Interest is to be compounded semiannualty on all funds b. Determine how much the revised semiannual payments should be afler this rate change (there are 12 payments and compounding dates). The next payment will be in the middle of the fourth year. (Do not round intermediate calculations. Round your final answer to 2 decimal places.) semi-annual payment

Explanation / Answer

1. Semi Annual Payments

Semi Annual Payments = Future Value / FVAF (6%, 18)

Semi Annual Payments = 220000 / 30.906

Semi Annual Payments = $7118.36

2. Semi Annual Payment in Changed Scenario

Payments done till 6th = PMT * FVAF (6%, 6)

Payments done till 6th = 7118.36 * 6.975

Payments done till 6th = $49650.55

Semi Annual Payment = (220000 – 49650.55 * FVF (7%, 12)) / FVAF (7%, 12)

Semi Annual Payment = (220000 – 49650.55 * 2.252) / 17.888

Semi Annual Payment = $6048.02

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