Question: A company decides to borrow $100 000 at j1 = 12% in order to finance a new equipment purchase. One of the conditions of

A company decides to borrow $100 000 at j1 = 12% in

A company decides to borrow $100 000 at j1 = 12% in order to finance a new equipment purchase. One of the conditions of the loan is that the company must make annual payments into a sinking fund (the sinking fund will be used to pay off the loan at the end of 20 years). The sinking-fund investment will earn j1 = 6%. a) What is the amount of each sinking-fund payment if they are all to be equal? Amount of each sinking-fund 2$ b) What is the total annual cost of the loan? Total annual cost c) What overall annual effective compound interest rate is the company paying to borrow the $100 000 when account is taken of the sinking-fund requirement? Compound interest rate %24

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