Reiny the answer 307.33 you posted at the bottom is coming up incorrect. please if you can help i would be very grateful. 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.
Total monthly payment = $
Finance - Loans problem - Reiny, Tuesday, March 31, 2015 at 8:45pm
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)