You get an offer for a credit card that charges 13.99% interest APR, compounded monthly. What effective annual interest rate doe
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Answer:
The balance in the Sinking Fund immediately after repayment of the loan will be $2,133.19
Explanation:
Hi, John will pay the loan by paying the yearly interest and the rest is going to go to the sinking fund, so, if he has $1,627.45 and the annual interest of the loan are $1,000, he will be depositing $627.45 into the sinking fund for ten years. Therefore, the future value of the annual deposits of the sinking can be found by using the following formula.
Where:
A = equal annual savings into the sinking fund (that is $627.45)
r = effective rate of the sinking fund (14%)
n = 10 years
Everything should look like this.
Now, this is the balance after 10 years, but remember that John has to pay the loan, which is $10,000 (not $11,000 because John pays the interest of the loan and then deposits the balance into the sinking fund). Therefore, the balance after repaying the loan is $12,133.19 - $10,000 = $2,133.19.
Best of luck.