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Question: A manufacturing firm intends to purchase a new equipment costing Ghc 30,000. The money required to buy the equipment is to be provided as a loan by the company's bankers. The agreed rate of interest is 20% per annum, compounded annually. The loan is repayable in full with interest at the end of five years. To provide for this eventual repayment, the Board of Directors of the company has decided to set aside, equal annual amount at the beginning of each year, and invest in a fund which will earn 25% per annum interest, with interest compounded annually.

i. Determine the annual payments into the fund which will be sufficient to repay the loan in five years.

ii. Construct a sinking fund schedule showing how the invested funds accumulate to an amount equal to that of the loan.

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