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How much should the annual deposit be increased

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Steve Thicket Corporation issued $3,500,000 of 4.25% 10 year bonds. Interest is payable annually on the bonds, however, the company's CFO is concerned about having sufficient funds to pay back the bonds at the end of 10 years. Therefore, the CFO is establishing a "Bond Sinking Fund" by making annual deposits of $250,000 to the fund starting at the end of the first year and continuing through the end of the 10th year. The fund is projected to provide a return of 6% per year.

Problem 1: Will the CFO's planned deposits be sufficient to meet the obligation? If the planned deposits are insufficient, how much should the annual deposit be increased by in order to meet the obligation?

Reference no: EM132864678

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