Question

In: Finance

A company borrows $200000, which will be paid back to the lender in one payment at...

A company borrows $200000, which will be paid back to the lender in one payment at the end of 8 years. The company agrees to pay monthly interest payments at the nominal annual rate of 4% compounded monthly. 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 13% compounded monthly. Find the total amount of the monthly payments, that is, the sum of the interest payment and the sinking fund payment.

Total monthly payment = $

Expert Solution

Monthly interest rate of borrowing = 4 % /12 = 0.04/12 or 0.003333333

Monthly interest amount for $ 200,000 = 0.003333333 x $ 200,000 = $ 666.67

Future amount of sinking fund = $ 200,000

Monthly payment of sinking fund can be computed using future value of annuity as:

FV = P x [{(1+r) ⁿ – 1}/r]

FV = Future value of fund = $ 200,000

P = Periodic payment

r = Rate per period = 0.13/12 or 0.010833333 p.m.

n = no. of periods = 8 x 12 = 96

$ 200,000 = P x [{(1+0.010833333)⁹⁶ – 1}/0.010833333]

= P x [{(1.010833333)⁹⁶ – 1}/0.010833333]

= P x [(2.81343744 – 1)/0.010833333]

= P x (1.81343744/0.010833333)

= P x 167.3942253

P = $ 200,000/167.3942253

P = $ 1,194.78

Total monthly payments = $ 666.67 + $ 1,194.78 = $ 1,861.45

jeff jeffy answered 2 years ago

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...

A company borrows $170000, which will be paid back to the lender in one payment at...

A company borrows $170000, 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 11% 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 4% compounded yearly. Find the total amount...

A company with a tax rate of 40% borrows $100M from lender A at a cost...

A company with a tax rate of 40% borrows $100M from lender A at a cost of 8% and $300M from lender B at a cost of 6%. What is the firm’s aggregate cost of borrowing (a) before taxes; and (b) after taxes?

bob borrows $10,000 to be paid back over 30 years with level end of your year...

bob borrows $10,000 to be paid back over 30 years with level end of your year payments at an annual interest rate of x. The sum of principal repayment during year five and year 10 is equal to the amount of principle repaid during the year 15. find x

the marcus hotel borrows $200000 from the spartan national bank the details are as follows: a....

the marcus hotel borrows $200000 from the spartan national bank the details are as follows: a. Term of loan = 5 years b. amortization rate = based on 10 years c. frequency of payment = annual d. interest rate = 6% required 1. prepare a loan amortization table for five years 2. what percentage of the loan was paid off over the five year period? 3. what was the total amount of interest paid? 4. what amount of interest will...

On March 3, XYZ Company borrows $10,000,000 for one year with interest paid quarterly at LIBOR...

On March 3, XYZ Company borrows $10,000,000 for one year with interest paid quarterly at LIBOR and also has a long position in an interest rate cap with an exercise rate of 9% for a premium of $50,000 in order to protect against rising interest rates. Given the following term structure, determine the effective cost of borrowing with and without the cap. Date Days in Period LIBOR (%) March 3 9 June 3 91 8 September 3 92 11 December...

A couple has decided to purchase a $200000 house using a down payment of $15000. They...

A couple has decided to purchase a $200000 house using a down payment of $15000. They can amortize the balanxe at 10% over 25 years. What is their monthly payment? What is the total interest paid? What is the equity after 5 years? What is the equity after 20 years?

A certain college graduate borrows $8,937 to buy a car. The lender charges interest at an...

A certain college graduate borrows $8,937 to buy a car. The lender charges interest at an annual rate of 16% . Assuming that interest is compounded continuously and that the borrower makes payments continuously at a constant annual rate, determine the payment rate that is required to pay off the loan in 6 years. Also determine how much interest is paid during the 6 -year period. When calculating the interest use the non-rounded value of the payment rate, then round...

5) If a company borrows money from a bank, the interest paid on this load should...

5) If a company borrows money from a bank, the interest paid on this load should be reported on the statement of cash flows: A. Operating activity B. Investing activity C. Financing activity D. Noncash investing and financing activity E. This is not reported in the statement of cash flows. 6) The appropriate section in the statement of cash flows for reporting the purchase of land in exchange for common stock is: A. Operating activities B. Financing activities C. Investing...

B borrows $15,000 for eight years and agrees to make semiannual payments of $1400. The lender...

B borrows $15,000 for eight years and agrees to make semiannual payments of $1400. The lender receives 10% convertible semiannually on the investment each year for the first six years and 8% convertible semiannually for the last two years. The balance of each payment is invested in a sinking fund earning 6% convertible semiannually. Find the amount by which the sinking fund is short of repaying the loan at the end of the eight years. (Answer: $1,270.48.)