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Summary: 1/17
Chapter 4. Amortization and sinking bonds.
Manual for SOA Exam FM/CAS Exam 2.
Chapter 4. Amortization and sinking bonds.
Section 4.2. Sinking funds.
c 2008. Miguel A. Arcones. All rights reserved.
Extract from:
"Arcones' Manual for the SOA Exam FM/CAS Exam 2,
Financial Mathematics. Spring 2009 Edition",
available at http://www.actexmadriver.com/
c 2008. Miguel A. Arcones. All rights reserved. Manual for SOA Exam FM/CAS Exam 2.
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Chapter 4. Amortization and sinking bonds. Section 4.2. Sinking funds.
An alternate way to repay a loan is to make two payments, one
directly to the lender and another to an auxiliary fund. The
auxiliary fund is called a sinking fund. The payments made
directly to the lender apply to the principal. The deposits made
into the sinking fund do not. Usually, the sinking fund accumulates
with a different interest rate than the rate charged by the lender.
At the end of the duration of the loan, the borrower withdraws the
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