I have this question I can't figure out:
$1000 is borrowed for 20 years at 5% effective. The borrower does not pay interest currently and will pay all accrued interest at the end of 20 years together with the principal. (a) Find the total annual sinking fund deposit necessary to liquidate the loan at the end of 20 years if the sinking fund earns 4% effective. (b) Find the total annual amortization payment at 5% effective.
The annual interest payment will obviously be (1000)(.05) = 50.
These payments will accumulate according to an annuity-immediate with time = 20 and i = .05. Thus, these accumulate to (50)[((1.05)^20) - 1)/.05) = 1653.30. I just don't see what I do now.
I'm in a university-level first-year interest class and I'm studying for an exam. Would someone mind showing me how to do this problem? I have more done, but it's tough to show on the computer. I understand all the formulas, so any help doesn't have to be completely worked out.
Thanks in advance.