1. A 10 year loan of $2000 can be repaid with payments of $K at the end of each year at an effective interest rate of 10%. However, the borrower decides pay only the interest at the end of each year, and sets up a sinking fund that pays an annual effective rate of 12%. The deposits to the sinking fund are $K minus the interest on the loan, and are made at the end of each year for 10 years. Determine the balance in the sinking fund immediately after the repayment of the loan.
1. A 10 year loan of $2000 can be repaid with payments of $K at the end of each year at an effective interest rate of 10%. However, the borrower decides pay only the interest at the end of each year, and sets up a sinking fund that pays an annual effective rate of 12%. The deposits to the sinking fund are $K minus the interest on the loan, and are made at the end of each year for 10 years. Determine the balance in the sinking fund immediately after the repayment of the loan.
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter22: Providing And Obtaining Credit
Section: Chapter Questions
Problem 3P: Del Hawley, owner of Hawleys Hardware, is negotiating with First City Bank for a 1-year loan of...
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