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Find the total amount of the installment paid by nicola

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Question - Nicola borrows a $24,000 loan from Steve. She agrees to pay interest on the loan at the end of each year for 8 years, and will repay the capital by the accumulation of a sinking fund. The sinking fund deposits are such that the net amount of the loan decreases linearly, resulting in a level repayment of principal at the end of each year. The interest rate on the loan is 5% over the first 4 years and 4.5% over the next 4 years. The sinking fund earns a fixed 4% interest rate per annum.

(a) Find the total amount of the 5th installment paid by Nicola.

(b) Compare this with the case when Nicola repays the loan with 8 equal annual installments.

Reference no: EM133088509

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