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Fund to Retire Bonds At the beginning of 2019, Shanklin Company issued 10-year bonds with a face value of $1,000,000 due on December 31, 2028. Shanklin wants to accumulate a fund to retire these bonds at maturity by making annual deposits beginning on December 31, 2019. Required: How much must Shanklin deposit each year, assuming that the fund will earn 12% interest a year compounded annually

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Answer:

$56,984

Explanation:

We can find the Annuity value by using the annuity formula which is as under:

Future Value = Annuity Value * Annuity Factor

Here

Future Value given is $1,000,000

Annuity Factor at 12% for 10 year bond = [1 - (1 + 12%)^10] / 12%  = 17.548735

By putting values in the formula given above, we have:

$1,000,000 / 17.548735  = Annuity Value

Annuity Value = $56,984