A 20-year loan of 20,000 may be repaid under the following two methods:
(i) amortization method with equal annual payments at an annual effective interest rate of 6.5%
(ii) sinking fund method in which the lender receives an annual effective interest rate of 8% and the sinking fund earns an annual effective interest rate of j.
Both methods require a payment of X to be made at the end of each year for 20 years. Calculate j.
Under amortization method, payment is X = 20;000 a20 6:5% = 1815:13: Under the sinking fund method, the... View the full answer