Tamara borrows $$34,500\mathrm{.}00$ which she will repay by making interest only payments over $8$ years. She is also required to set up a sinking fund that will be used to pay the principal at maturity, and that the bank will sieze in case of default. The interest rate on the loan is i$(4)=2\mathrm{.}375\%,$ and the interest rate on the sinking fund is i$(1)=4\mathrm{.}625\%.$ Payments on both the loan and the sinking fund will be made quarterly. Tamara defaults on the loan after $31$ periods $($just after making both her loan payment and sinking fund deposit$).$ How much are the sinking fund deposits Ksf and how much does the lender lose on default?

Question $4$ Answer

a$.$

Ksf $=$ $$899\mathrm{.}95,$ Loss $=$ $$34,500\mathrm{.}00.$

b$.$

Ksf $=$ $$899\mathrm{.}95,$ Loss $=$ $$1,277\mathrm{.}60.$

c$.$

Ksf $=$ $$1,292\mathrm{.}12,$ Loss $=$ $$1,277\mathrm{.}60.$

d$.$

Ksf $=$ $$1,292\mathrm{.}12,$ Loss $=$ $$18,975\mathrm{.}53.$

e$.$

Ksf $=$ $$899\mathrm{.}95,$ Loss $=$ $$18,975\mathrm{.}53.$