Answer to Question #136538 in Financial Math for Wachira Ann Wangari

Question

A 20 year loan of $50000 is repaid as follows; The borrower pays only interest on the loan, annually in arrears at a rate of 5.5%per annum. The borrower will take out a separate savings policy which involves making monthly payments in advance such that the proceeds will be sufficient to repay the loan at the end of its term. The payments into the savings policy accumulate at a rate of interest of 4%per annum effective. Compute the monthly payments into the savings account which ensure that it contains$50,000 after 20 years, and write down the equation of value for the effective rate of interest on the loan if it is repaid using this arrangement.

Answer 1

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