A 25-year loan of 175,000 is negotiated with the borrower agreeing to repay principal and interest...

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A 25-year loan of 175,000 is negotiated with the borrower agreeing to repay principal and interest at 7%. A level payment of 10,000 will apply during the first twelve years and a higher level payment will apply during the remaining thirteen 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 3%. (Assume that the interest portion remains level throughout these 25 years and assume that all but the interest portion is deposited into the sinking fund.) This scheme will replace the lender's capital. Find the lender's yield on this investment. A 25-year loan of 175,000 is negotiated with the borrower agreeing to repay principal and interest at 7%. A level payment of 10,000 will apply during the first twelve years and a higher level payment will apply during the remaining thirteen 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 3%. (Assume that the interest portion remains level throughout these 25 years and assume that all but the interest portion is deposited into the sinking fund.) This scheme will replace the lender's capital. Find the lender's yield on this investment.

Answer rating: 100% (QA)

To find the lenders yield on this investment we need to calculate the total amount of money the lender will receive from the borrower over the 25year ... View the full answer