A loan of 10,000 is taken out on March 1, 1995, at an effective rate of interest of 8% per year. Interest is paid annually, and a sinking fund is established to repay the principal on March 1, 2002. Payments are made annually into the fund beginning on March 1, 1996, and the fund earns interest at 9% per year.

(a) Find the amount of each payment made to the sinking fund.

(b) Find the total amount the borrower must pay each year.

(c) From the point of view of the borrower, what rate of interest is she really paying each year?

AppendixLO1