A 15-year, $500,000 loan will be repaid by the sinking fund method. Interest only must be paid at the end of each year. At the same time, 15 equal annual deposits will be made to a sinking fund that is to accumulate the $500,000 needed to repay the principal after 15 years. Interest on the loan is 14% compounded annually, and the sinking fund will earn 10% compounded annually.
-What will be the book value of the debt just after the fifth deposit to the sinking fund?

Question

Quizplus · Accepted Answer

The book value of the debt just after the fifth deposit to the sinking fund is $403,924.72. This is because the sinking fund will have accumulated $96,075.28 after 5 years, and the remaining balance of the loan will be $403,924.72.

A 15-Year, $500,000 Loan Will Be Repaid by the Sinking