Question

Nicola borrows a $24000 loan from Steve. She agrees to pay interest on the loan at...

Nicola borrows a $24000 loan from Steve. She agrees to pay interest on the loan at the end of each year for 8 years, and will repay the capital by accumulation of a sinking fund. The sinking fund deposits are such that the net amount of the loan decreases linearly, resulting in a level repayment of principal at the end of each year. The interest rate on the loan is 5% over the first 4 years and 4.5% over the next 4 years. The sinking fund earns a fixed 4% interest rate per annum.

(a) Find the total amount of the 5th installment paid by Nicola. (Ans. $3600)

(b) Compare this with the case when Nicola repays the loan with 8 equal annual installments.

Homework Answers

Answer #1

Principle amount repayment/year will be=24000/8=3000/yr

Year Amount o/s Interest(5%/4.5% Total Repayment amount Balance
1 24000 1200 25200 4200 21000
2 21000 1050 22050 4050 18000
3 18000 900 18900 3900 15000
4 15000 750 15750 3750 12000
5 12000 540 12540 3540 9000
6 9000 405 9405 3405 6000
7 6000 270 6270 3270 3000
8 3000 135 3135 3135 0
Total 29250

b) when Nicola repays the loan with 8 equal annual installments.=29250/8=3656.25/installment

Difference between two=3656.25-3540=116.25

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Jill borrows $29,000 from you today. She agrees to repay you in two equal amounts, the...
Jill borrows $29,000 from you today. She agrees to repay you in two equal amounts, the first to occur in 3 years from today and the other in 7 years from today. If the interest rate is 14.6% per annum compounding monthly, what will be the amount of each repayment?
A company borrows $160000, which will be paid back to the lender in one payment at...
A company borrows $160000, which will be paid back to the lender in one payment at the end of 8 years. The company agrees to pay monthly interest payments at the nominal annual rate of 11% compounded monthly. At the same time the company sets up a sinking fund in order to repay the loan at the end of 8 years. The sinking fund pays interest at an annual nominal interest rate of 15% compounded monthly. Find the total amount...
Brian borrows $15,000 from Mary and agrees to repay with 12 installments payable half-yearly. The effective...
Brian borrows $15,000 from Mary and agrees to repay with 12 installments payable half-yearly. The effective interest rate is 6.09% per annum. When the 6th payment is due, Brian repays the outstanding loan balance by a lump sum. a.) Calculate the lump sum payment of Brian b.) Calculate the loss of interest income of Mary Please show all work by hand, without using a finance calculator or Excel. Thank you.
A company borrows $140000, which will be paid back to the lender in one payment at...
A company borrows $140000, which will be paid back to the lender in one payment at the end of 12 years. The company agrees to pay semi-annually interest payments at the nominal annual rate of 13% compounded semi-annually. At the same time the company sets up a sinking fund in order to repay the loan at the end of 12 years. The sinking fund pays interest at an annual nominal interest rate of 8% compounded semi-annually. Find the total amount...
A company borrows $170000, which will be paid back to the lender in one payment at...
A company borrows $170000, which will be paid back to the lender in one payment at the end of 6 years. The company agrees to pay yearly interest payments at the nominal annual rate of 13% compounded yearly. At the same time the company sets up a sinking fund in order to repay the loan at the end of 6 years. The sinking fund pays interest at an annual nominal interest rate of 5% compounded yearly. Find the total amount...
A manufacture borrows P2,843,737 with interest at 8% compounded monthly, and agrees to discharge the loan...
A manufacture borrows P2,843,737 with interest at 8% compounded monthly, and agrees to discharge the loan by a sequence of equal monthly payments for 5 years with the first payment at the beginning of the 4th year. Find the periodic payment. DEFERRED ANNUITY.
3) A friend borrows $4000 from you, agreeing to pay 4.55% simple interest. The loan plus...
3) A friend borrows $4000 from you, agreeing to pay 4.55% simple interest. The loan plus interest is to be paid back after 30 months. When the loan is repaid how much will be the interest portion of the repayment? What will the total repayment be, including interest and the principal? 4) You invested $10,000 In a CD that offers 4 1/4% rate compounded monthly. How much will you have in a CD after 6 years and 3 months? What...
Jill borrows $300,000 for 10 years at a fixed interest rate of i % p.a (EAR)....
Jill borrows $300,000 for 10 years at a fixed interest rate of i % p.a (EAR). If the loan is repaid in 10 equal year-end payments over the 10 years, the amount of the loan outstanding at the end of the 5th year will be:
RM60,000 is borrowed for 12 years at 5% compounded annually. The borrower does not pay interest...
RM60,000 is borrowed for 12 years at 5% compounded annually. The borrower does not pay interest currently and will pay all accrued interest at the end of 12 years together with the principal. (a) Find the amount annual sinking fund deposit necessary to liquidate the loan at the end of 12 years if the sinking fund earns 3% yearly compounding and the borrower make first payment immediately. (b) Prepared a sinking fund schedule. Ans: (a) RM 7,371.25 (PLS DUN ANSWER...
Question 1 Jack took a $ 5,000 loan, which he repaid in monthly installments over seven...
Question 1 Jack took a $ 5,000 loan, which he repaid in monthly installments over seven months. Payments were always made at the end of the month (each payment month was 1/12 part of the year) so that the first repayment was made 4 months after the loan was drawn down. Each equal installment consisted of an installment of the loan amount of $ 5,000 / 7 and an interest component of $ 30 and an account management fee of...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT