Question

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?

Answer 1

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