Question
A loan of 100,000 is to be repaid by 20 level annual payments. The lender wishes to earn 12% per year on the full loan
A loan of 100,000 is to be repaid by 20 level annual payments. The lender wishes to earn 12% per year on the full loan amount and will deposit the remainder of the annual payment to a sinking fund earning 8% annually. a. Find the amount of the level annual payment b. Just after receiving the 10th payment, the lender sells the remaining 10 payments. The purchaser (investor) considers two ways of valuing the remaining payments: i. Amortization at 10% per year, or ii. Earning an annual return of 12% on his investment while recovering his principal in a sinking fund earning 8% Find the amount in the original lenders sinking fund at the time the remainder of the loan is sold, and in each of cases (i) and (ii) find the amount paid by the investor to the original lender.
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