A company borrows $150000, which will be paid back to the lender in one payment

Question

A company borrows $150000, which will be paid back to the lender in one payment at the end of 5 years. The company agrees to pay yearly interest payments at the nominal annual rate of 6% compounded yearly. At the same time the company sets up a sinking fund in order to repay the loan at the end of 5 years. The sinking fund pays interest at an annual nominal interest rate of 1% compounded yearly. Find the total amount of the yearly payments, that is, the sum of the interest payment and the sinking fund payment.
Total yearly payment = $

Explanation / Answer

sinking fund payment= 150000/[.01/{(1+.01)^5-1}]= $150000x.1964= 29405.97

Calculate I:
I = Loan * Effective Interest Rate
I = 150000 * 0.06
I = 9000

Calculate P:
P = D + I
P = 29405.97 + 9000
P = $38,405.97

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