In: Accounting
On a loan of 50,000 for 30 years at 6.8% annually the lender wants the interest paid annually and the principal repaid at the end of the 20 years. The borrower makes annual level payments into a sinking fund to raise the 50,000. The fund earns 5.8% annually. What are the borrowers total annual payments?
Total annual payments = sinking fund payment + interest payment
Payment required | = | FV*r /[(1+r)^n -1] | |
Future value | FV | 50,000.00 | |
Rate per period | r | ||
Annual interest | 5.8% | ||
Number of payments per year | 1 | ||
Interest rate per period | 0.058/1= | ||
Interest rate per period | 5.800% | ||
Number of periods | n | ||
Number of years | 20 | ||
Periods per year | 1 | ||
number of periods | 20 | ||
Sinking fund payment | = | 50000*0.058/ [(1+0.058)^20 -1] | |
= | 1,388.72 | ||
Add: loan interest | 3,400.00 | ||
Total annual payment | 4,788.72 |
Total annual payment is $4,788.72