Common information for problems 4 and 5
A 20-year loan of 150,000 is negotiated with the borroweragreeing to repay principal and interest at 5%. A level payment of9,000 will apply during the first ten years and a higher levelpayment will apply during the remaining ten years. Each time thelender receives a payment from the borrower, he will deposit theportion representing the principal into a sinking fund with anannual effective interest rate of 4%. (Assume that the interestportion remains level throughout these 20 years and assume that allbut the interest portion is deposited into the sinking fund.) Thisscheme will replace the lender’s capital.
Find the lender’s yield on this investment.
| A. | .0784 |
| B. | .0384 |
| C. | .0704 |
| D. | . 0479 |
| E. | The answer is not listed here |
