A company borrows $170000, which will be paid back to the lender in one payment at the end of 5 years. The company agrees to pay monthly interest payments at the nominal annual rate of 7% compounded monthly. At the same time the company sets up a sinking fund in order to repay the loan at the end of 5 years. The sinking fund pays interest at an annual nominal interest rate of 12% compounded monthly. Find the total amount of the monthly payments, that is, the sum of the interest payment and the sinking fund payment.

Question

Total monthly payment = $

Answer 1

the monthly interest charge on the $17,000 loan is
(.07/12)(17000) = 99.17

Since the interest is paid every month , the outstanding balance will remain at $17,000.

So we need to set up a monthly payment which will accumulate to 17,000 at the end of 5 years, using the 12% of the sinking fund
i = .12/12 = .01
n = 5(12) = 60

paym( 1.01^60 - 1)/.01 = 17000
paym = 208.16

So the total monthly payment needed to discharge the loan
= 208.16 + 99.17 = $ 307.33

(An interesting addition to the problem would be to calculate the actual effective interest rate of the loan)

Answer 2

Please If you can. 307.33 is coming up as the wrong answer.

Answer 3

You may have forgotten that the number is 170000 not 17000. Try changing it and the answer will be correct.

Answer 4

Late, I know but the answer is 3073.23