Barbara borrows $3000. She agrees to make monthly interest payments on the loan and will build...
Barbara borrows $3000. She agrees to make monthly interest payments on the loan and will build up a sinking fund with monthly deposits to repay the principal with a single payment 19 months from now. If the interest being charged on the loan is j12 = 8.5% and the interest being earned on the sinking fund is j12 = 5.4%, what is the monthly cost of the debt for Barbara?
Homework Answers
| Loan amount | 3000 |
| Interst rate | 8.50% |
| Monthly rate | 0.7083% |
| Monthly interst payment | 21.25 |
| Future Amount of Sinking Fund | 3000 |
| Interst rate | 5.40% |
| Monthly rate (i/12) | 0.45% |
| Future value of Annuity is calculated as follows | |
| FV=P*((1+r)^n-1/r) | |
| FV= future value=3000 | |
| P=periodic payment | |
| r= rate of interest | |
| n= number of payments | |
| 3000=p*((1+0.0045)^19-1/0.0045) | |
| 3000=p*(1.089053-1/0.0045) | |
| P=3000/19.78948 | |
| p=151.5957 | |
| Monthly cost =21.25+151.5957 | |
| $ 172.85 | |
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