You took a loan of 500,000 which required to pay 25 equal annual payments at 10% interest. The payments are due at the end of each year. The bank sold your loan to an investor immediately after receiving your 6th payment. With yield to the investor of 7% , the price the investor pay was 569,326. Determine the bank's overall return on its investment. (Ans : 0.127)
What i did so far, I calculated the payment by using the annuity formula 500,000 = P(1-1.1^-25 / 0.1) which yield P = 55084.0361.
Then i though the overall return is to calculate the AV for n=25 with 10% interest and use 569326 / AV. But the ans i get is 0.1051.
In this question i totally ignored the 7% because i have no idea what is the use for it. Is it after the bank sold the loan, then the payment after 6th will be charge with 7% interest?
Thank in advance for anyone can solve it.