Question

RM60,000 is borrowed for 12 years at 5% compounded annually. The borrower does not pay interest currently and will pay all accrued interest at the end of 12 years together with the principal.

(a) Find the amount annual sinking fund deposit necessary to liquidate the loan at the end of 12 years if the sinking fund earns 3% yearly compounding and the borrower make first payment immediately.

(b) Prepared a sinking fund schedule.

Ans: (a) RM 7,371.25

Answer 1

Future value of loan	Using future value function in MS excel	fv(rate,nper,pmt,pv,type) rate = 5% nper = 12 pmt = 0 pv =60000 type =0	FV(5%,12,0,60000,0)	($107,751.38)
Annual Payment	Using pmt function in MS excel	pmt(rate,nper,pv,fv,type) rate = 3% nper = 12 pv =0 fv = 107751.38 type =1	PMT(3%,12,0,-107751.38,1)	$7,371.25
Sinking fund schedule
Period	Beginning amount	Interest earned = beginning balance*rate	Regular deposit	Ending amount = beginning balance+interest earned+regular deposit
0	0	0	$7,371.25	$7,371.25
1	$7,371.25	$221.14	$7,371.25	$14,963.64
2	$14,963.64	$448.91	$7,371.25	$22,783.79
3	$22,783.79	$683.51	$7,371.25	$30,838.56
4	$30,838.56	$925.16	$7,371.25	$39,134.96
5	$39,134.96	$1,174.05	$7,371.25	$47,680.26
6	$47,680.26	$1,430.41	$7,371.25	$56,481.92
7	$56,481.92	$1,694.46	$7,371.25	$65,547.63
8	$65,547.63	$1,966.43	$7,371.25	$74,885.31
9	$74,885.31	$2,246.56	$7,371.25	$84,503.11
10	$84,503.11	$2,535.09	$7,371.25	$94,409.46
11	$94,409.46	$2,832.28	$7,371.25	$104,612.99
12	$104,612.99	$3,138.39	$0.00	$107,751.38