A 20-year loan of 150,000 is negotiated with the borrower agreeing to repay principal and interest at 5%. A level payment of 9,000 will apply during the first ten years and a higher level payment will apply during the remaining ten years. Each time the lender receives a payment from the borrower, he will deposit the portion representing the principal into a sinking fund with an annual effective interest rate of 4%. (Assume that the interest portion remains level throughout these 20 years and assume that all but the interest portion is deposited into the sinking fund.) This scheme will replace the lender’s capital.

What is the higher payment (rounded to the nearest dollar) that applies during the years 11-20?

Answer rating: 100% (QA)

Interest portion 5 x 150000 7500 Hence principal portion in the first 10 years pa... View the full answer