Problem:
A company can borrow $100,000 at 10% compounded annually for 10 years. To repay the debt at the end of 10 years, a sinking fund is to be set up at 9% compounded annually. Another lender will provide the money at 9 1/2% compounded annually and permit the loan to be amortized by 10 equal annual payments. Which plan would you choose for the company?