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Question 3 A loan of RM200,000, paid annually, is made for a term of 30 years at an effective interest rate of 4.5%. The lender allows only annual year-end interest payments made until at the end of 30 years. In order to pay the loan of RM200,000 at the end of 30 years, the borrower will make a level annual year-end payments into a sinking fund earning 6% interest rate per year. (a) Determine the total interest charge to the borrower by taking this scheme for 30 years period. [8 marks] (b) Without calculation, explain why the total interest charge of sinking fund method as in (a) is less than the total of interest charge for the amortization method of payment. [2 marks] (c) Determine interest earned at 10-th payment. [5 marks] Question 3 A loan of RM200,000, paid annually, is made for a term of 30 years at an effective interest rate of 4.5%. The lender allows only annual year-end interest payments made until at the end of 30 years. In order to pay the loan of RM200,000 at the end of 30 years, the borrower will make a level annual year-end payments into a sinking fund earning 6% interest rate per year. (a) Determine the total interest charge to the borrower by taking this scheme for 30 years period. [8 marks] (b) Without calculation, explain why the total interest charge of sinking fund method as in (a) is less than the total of interest charge for the amortization method of payment. [2 marks] (c) Determine interest earned at 10-th payment. [5 marks]

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