1) You are loaned $100,000 and can pay this off one of two ways: a) By 10 constant payments of K at the end of each year, where here the effective annual interest rate for the loan is 6%. b) By making interest payments at the end of each year and paying off the principle at the end of 10 years by making constant payments into a sinking fund earning an effective annual interest rate of 7%. Here the effective annual interest rate for the loan is JL. Find JL so that the yearly payments for both options are the same.
1) You are loaned $100,000 and can pay this off one of two ways: a) By 10 constant payments of K at the end of each year, where here the effective annual interest rate for the loan is 6%. b) By making interest payments at the end of each year and paying off the principle at the end of 10 years by making constant payments into a sinking fund earning an effective annual interest rate of 7%. Here the effective annual interest rate for the loan is JL. Find JL so that the yearly payments for both options are the same.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:1) You are loaned $100,000 and can pay this off one of two ways:
a) By 10 constant payments of K at the end of each year, where here the effective annual interest
rate for the loan is 6%.
b) By making interest payments at the end of each year and paying off the principle at the end of
10 years by making constant payments into a sinking fund earning an effective annual interest rate
of 7%. Here the effective annual interest rate for the loan is JL.
Find JL so that the yearly payments for both options are the same.
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