A loan of 10,000 is repaid at an annual effective interest rate of 8%, with equal payments made at the end of each year for ten years. The lender immediately deposits each payment into an account earning an annual effective interest rate of 10%.

Calculate the total amount of interest earned by the lender during the term of the loan.

• 11,589
• 13,576
• 13,751
• 14,191
• 14,903

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.

Solution: C

Payment equals:

[[math]] 10,000/{a}_{\overline{10}|0.08}=1,490.23 [[/math]]

Accumulated total equals:

[[math]] 1,490.29s_{\overline{{{10}}}|0.10}=23,751.46 [[/math]]

23, 751.46 -10, 000 =13, 751.46

Copyright 2023 . The Society of Actuaries, Schaumburg, Illinois. Reproduced with permission.