A corporation takes out a loan for $88,000 with interest due every six months for 7-years at j₂.The principal will be paid in one lump sum at the end of 7-years.The corporation makes semi-annual deposits of $5,150.32 into a sinking fund.The semi-annual cost of the loan is $9,110.32.What would be the semi-annual payment if the corporation was to instead pay off the loan using the amortization method,given the interest rate on the loan remained the same at j₂?

Question

Quizplus · Accepted Answer

The semi-annual payment using the amortization method can be calculated using the formula for an annuity, where the present value of the annuity (the loan amount) is $88,000, the interest rate per period (semi-annual) is given by the effective semi-annual rate corresponding to j₂, and the number of periods is 14 (7 years with semi-annual payments). The correct answer involves calculating this payment, which results in $8,608.19.

A Corporation Takes Out a Loan for $88,000 with Interest