A ten year loan of $10,000 at 8% annual effective can be repaid using any of...

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Accounting

A ten year loan of $10,000 at 8% annual effective can be repaidusing any of the four following methods: (i) Amortization method,with annual payments at the end of each year. (ii) Repay theprincipal at the end of ten years while paying the 8% annualeffective interest on the loan at the end of each year. Inaddition, make level annual deposits at the end of each year into asinking fund earning 6% annual effective so that the sinking fundaccumulates to $10,000 at the end of the 10th year. (iii) Same asii, except that the sinking fund earns 8% annual effective. (iv)Same as ii, except that the sinking fund earns 12% annualeffective. Rank the annual payment amounts of each method.

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ANSWER I Amortization method with annual payments at the end of each year Annual payments at the end of each year Loan Amount11rnr Annual payments at the end of each year 10000118108 Annual payments at the end of each year 149029 II Repay the principal at the end of ten years while paying the 8 annual effective interest on the loan at the end of each year In addition make equal annual deposits at the end of each year into a sinking fund earning 6 annual effective so that the sinking fund accumulates to See Answer

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