A company borrows $110000, which will be paid back to the lender in one payment at...

A company borrows $110000, which will be paid back to the lender in one payment at the end of 8 years. The company agrees to pay yearly interest payments at the nominal annual rate of 7% compounded yearly. At the same time the company sets up a sinking fund in order to repay the loan at the end of 8 years. The sinking fund pays interest at an annual nominal interest rate of 11% compounded yearly. Find the total amount of the yearly payments, that is, the sum of the interest payment and the sinking fund payment.

Total yearly payment = $

Expert Solution

Interest payment=Loan*rate=110000*7%

Sinking fund payment=Loan*rate/((1+rate)^n-1)=110000*11%/((1+11%)^8-1)

Total yearly payments=Interest payment+Sinking fund payment
=110000*7%+110000*11%/((1+11%)^8-1)
=16975.32

jeff jeffy answered 2 years ago

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