Ife borrows $35,500.00 which she will repay by making interest only payments over 4 years. She is also required to set up a sinking fund that will be used to pay the principal at maturity, and that the bank will sieze in case of default. The interest rate on the loan is i(1) = 3.250%, and the interest rate on the sinking fund is i(2) = 4.875%. Payments on both the loan and the sinking fund will be made semi-annually. Ife defaults on the loan after 4 periods (just after making both her loan payment and sinking fund deposit). How much are the sinking fund deposits Ksfand how much does the lender lose on default? a.Ksf = $4,072.59, Loss = $18,604.27. b.Ksf = $4,937.91, Loss = $18,604.27. c.Ksf = $4,072.59, Loss = $35,500.00. d.Ksf = $4,937.91, Loss = $20,485.60. e.Ksf = $4,072.59, Loss = $20,485.60.
Ife borrows $35,500.00 which she will repay by making interest only payments over 4 years. She is also required to set up a sinking fund that will be used to pay the principal at maturity, and that the bank will sieze in case of default. The interest rate on the loan is i(1) = 3.250%, and the interest rate on the sinking fund is i(2) = 4.875%. Payments on both the loan and the sinking fund will be made semi-annually. Ife defaults on the loan after 4 periods (just after making both her loan payment and sinking fund deposit). How much are the sinking fund deposits Ksfand how much does the lender lose on default? a.Ksf = $4,072.59, Loss = $18,604.27. b.Ksf = $4,937.91, Loss = $18,604.27. c.Ksf = $4,072.59, Loss = $35,500.00. d.Ksf = $4,937.91, Loss = $20,485.60. e.Ksf = $4,072.59, Loss = $20,485.60.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
Ife borrows $35,500.00 which she will repay by making interest only payments over 4 years. She is also required to set up a sinking fund that will be used to pay the principal at maturity, and that the bank will sieze in case of default. The interest rate on the loan is i(1) = 3.250%, and the interest rate on the sinking fund is i(2) = 4.875%. Payments on both the loan and the sinking fund will be made semi-annually. Ife defaults on the loan after 4 periods (just after making both her loan payment and sinking fund deposit). How much are the sinking fund deposits Ksfand how much does the lender lose on default?
a.Ksf = $4,072.59, Loss = $18,604.27.
b.Ksf = $4,937.91, Loss = $18,604.27.
c.Ksf = $4,072.59, Loss = $35,500.00.
d.Ksf = $4,937.91, Loss = $20,485.60.
e.Ksf = $4,072.59, Loss = $20,485.60.
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