An Annual Payment Loan Of 65 000 Is Made For A Term Of 10 Years At 7 The Lender

An annual payment loan of 65,000 is made for a term of 10 years at 7.3%. The lender only wants interest payments until the end of year 10 when a balloon payment is made. The borrower will make annual year-end deposits into a sinking fund earning 4.8%.

Find the total payment, and the principal in the 6th payment.

So, I’ve found the payments to the sinking fund to be $5216.23 at the end of each year, and the interest payment to be $4745 each year. So assuming he makes these payments the total payment would be $9961.23 at year 6, which was correct. However, in the answer key it says that the principal in the 6th payment is 5216.23*(1.0485)= $6594.22. Why do we multiply by the interest rate taken to that power? Wouldn’t the principal just be 5216.23 because he’s making level payments?

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