The sinking fund immediately after repayment of the loan

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Reference no: EM131879666

1. The nominal interest rate in the U.S. is 5% and the nominal interest rate in Canada is 3%. The spot value of the U.S. dollar is 1 ($/Canadian dollar) and the forward rate is 1.2 ($/Canadian dollar). Which of the following is NOT true?

A. The interest parity condition does not hold.

B. The dollar is likely to appreciate in spot markets.

C. Money will flow into the Canada.

D. The dollar is trading at a forward discount.

2. Bryan borrows 9,000 for 12 years at an annual effective interest rate of 9%. He can repay this loan using the amortization method with payments of 1,800 at the end of each year.

Instead, Bryan repays the 9,000 using a sinking fund that pays an annual effective interest rate of 14%. The deposits to the sinking fund are equal to 1,800 minus the interest on the loan and are made at the end of each year for 12 years.

Determine the balance in the sinking fund immediately after repayment of the loan.

18,003

17,978

17,998

18,005

17,979

Reference no: EM131879666

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