Question
A small corporation is looking to borrow $750,000 is choosing between the following alternatives: Alternative A : pay the loan off over ten years with
A small corporation is looking to borrow $750,000 is choosing between the following alternatives: Alternative A: pay the loan off over ten years with level annual payments of $97,100 Alternative B: pay off the loan at the end of 10-years using the sinking fund method where the sinking fund rate is j = 4% and annual interest payments are made assuming j = y. Which of the following statements is/are true? (I) If y = 0.03 for Alternative B then the corporation would chose Alternative A (II) If y = 0.05 for Alternative B then the corporation would choose Alternative B
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