A loan of 100,000 is to be repaid by ten annual payments beginning one year after...

    

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A loan of 100,000 is to be repaid by ten annual payments beginning one year after the loan is made. The lender wants annual payments of interest at a rate of 10% and repayment of the principal in a single lump sum at the end of 10 years. The borrower can accumulate the principal in a sinking fund earning an annual interest rate of 8%, and decides to do this by means of 10 level deposits starting one year after the loan is made. A loan of 100,000 is to be repaid by ten annual payments beginning one year after the loan is made. The lender wants annual payments of interest at a rate of 10% and repayment of the principal in a single lump sum at the end of 10 years. The borrower can accumulate the principal in a sinking fund earning an annual interest rate of 8%, and decides to do this by means of 10 level deposits starting one year after the loan is made.

Answer rating: 100% (QA)

To find the borrowers total annual outlay and compare it to the level annual payment required by the amortization method at 10 we can use the sinking fund method Lets break down the given information ... View the full answer