Question
Gordon borrows $5,000 at an effective rate of interest of 8% per annum. He agrees to pay interest payment at the end of each year
Gordon borrows $5,000 at an effective rate of interest of 8% per annum. He agrees to pay interest payment at the end of each year for n years, and repays the capital after n years by making sinking fund deposits at the end of each year for n years. The first sinking fund payment is $800, the subsequent n 1 payments increase by 5% each, while the payment at the end of n years is an irregular payment (less than the regular payment) such that the capital can be repaid. The sinking fund earns interest at 7.5% per annum. (a) Find the final irregular sinking fund deposit. (b) Find the growth rate of the sinking fund deposit if the loan is to be paid at the end of n years and the growth rate is always regular (i.e., there is no final smaller irregular payment).
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