A loan of $10,000 is taken out and is to be paid back over 10 years using the sinking fund method.Annual interest payments on the loan are due at j₁.Annual deposits into a sinking fund earning j₁ = 5% are made to accumulate the $10,000.The annual expense (cost)of debt is $1445.What is j₁?

Question

Quizplus · Accepted Answer

The annual cost of debt includes both the interest on the loan and the sinking fund deposit. Given the total cost is $1445 and the sinking fund earns 5%, solving for j₁ gives 6.50%.

A Loan of $10,000 Is Taken Out and Is to Be