A City Has Two Sources to Borrow $200,000

A city has two sources to borrow $200,000.The first source is to borrow at j₁ = 9% and amortize the debt for 10 years with annual payments of $31,164.For the second source,the money can be borrowed at j₁ = 8% if the interest is paid annually and the principal is repaid in a lump sum at the end of 10 years.Assume that a sinking fund can earn money at j₁ = x%.At which of the following values of × will the second source be cheaper?
(a) 7% (b) 6% (c) 5%

A) 7% only
B) 6% and 7%
C) 5%,6% and 7%
D) None of them

Correct Answer:

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