What is the total annual cost of the debt to the city

Reference no: EM132196813

Question: A city plans to pay off a $1,000,000 public debt falling due in 20 years by making an annual deposit out of operating revenues into a sinking fund paying 7% interest. How much must the city deposit each year to guarantee that the debt may be fully retired at the end of 20 years? If the city must also pay 9% per year interest on the full outstanding debt during the 20 years before it is repaid, what is the total annual cost of the debt to the city? If instead of paying the total principal, $1M, at the end of 20 years, the terms are that part of the principal is paid down each year, how much is the total annual cost of the debt to the city? Explain why the two are different.

Reference no: EM132196813

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