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Business Math : Payments, Installments and Compond Interest

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A company can borrow $100,000 at 10% compounded annually for 10 years. To repay the debt at the end of 10 years, a sinking fund is to be set up at 9% compounded annually. Another lender will provide the money at 9 1/2% compounded annually and permit the loan to be amortized by 10 equal annual payments. Which plan would you choose for the company?

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In first method of repayment,
r = 10 %
n =10 yrs

the total amount paid after 10 yrs:
A1 = 100000*(1 + 10/100)^10 = $259374.25

2nd mode:
r = 9.5%
each installment ...

Solution provided by:
Amrit Lal Ahuja, PhD (IP)
Education
  • BEng, Allahabad University, India
  • MSc , Pune University, India
  • PhD (IP), Pune University, India
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