Smith borrows 1000 and agrees to establish a sinking fund

Question

Smith borrows $1000 and agrees to establish a sinking fund to repay the loan at the end of 10 years.

Interest at 8% on the debt is paid annually as it falls due. The level annual deposits of $79.50 to the sinking fund are made at the end of each year.

a) Find the rate earned by the sinking fund.

b) Find the net interest paid in the 5^th outlay (interest due less interest earned in the sinking fund).

c) Find the net outstanding balance of the loan immediately after the 5^th outlay.