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 = $

This is what I came up with but it is wrong. Can anyone tell me where I went wrong?

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

then interest is paid every month , then outstanding balance should remain at $17,000.

So I were to set up a monthly payment which would accumulate to 17,000 at the end of 5 years, using the 12% of the sinking fund I would have: i = .12/12 = .01 & n = 5(12) = 60

payment (1.01^60 - 1)/.01 = 17000; so payment = 208.16

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

Only the answer is coming up as wrong.

Answer 1

I am reworking the problem .. I see one of my problems .. 17,000 is supposed to be 170,000. Re working problem with correct numbers now

Answer 2

using the 170,000 instead of 17,00 came up with 3073.23 which is correct.