A loan of 1,000,000 is to be repaid by ten annual payments beginning one year after the loan is made. The lender wants annual payments of interest at a rate of 12% and repayment of the principal in a single lump sum at the end of 10 years. The borrower can accumulate the principal in a sinking fund earning an annual interest rate of 10%, and decides to do this by means of 10 level deposits starting one year after the loan is made.** (a) Calculate the interest payment that is paid annually to service the loan. (b) Calculate the sinking fund payment made annually. (c) Calculate the amount in the sinking fund immediately after the deposit made at the end of 5 years. (d) Create the sinking fund schedule for the loan.
A loan of 1,000,000 is to be repaid by ten annual payments beginning one year after the loan is made. The lender wants annual payments of interest at a rate of 12% and repayment of the principal in a single lump sum at the end of 10 years. The borrower can accumulate the principal in a sinking fund earning an annual interest rate of 10%, and decides to do this by means of 10 level deposits starting one year after the loan is made.** (a) Calculate the interest payment that is paid annually to service the loan. (b) Calculate the sinking fund payment made annually. (c) Calculate the amount in the sinking fund immediately after the deposit made at the end of 5 years. (d) Create the sinking fund schedule for the loan.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:) A loan of 1,000,000 is to be repaid by ten annual payments beginning one year after the loan is made.
The lender wants annual payments of interest at a rate of 12% and repayment of the principal in a
single lump sum at the end of 10 years. The borrower can accumulate the principal in a sinking fund
earning an annual interest rate of 10%, and decides to do this by means of 10 level deposits starting
one year after the loan is made.**
(a) Calculate the interest payment that is paid annually to service the loan.
(b) Calculate the sinking fund payment made annually.
(c) Calculate the amount in the sinking fund immediately after the deposit made at the end of 5
years.
(d) Create the sinking fund schedule for the loan.
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