Band A offers to lend XYZ Corm $5,000,000 to be amortized in 10 annual payments at...

Band A offers to lend XYZ Corm $5,000,000 to be amortized in 10 annual payments at an interest of 0.07. Bank B's terms are that XYZ must pay an annual interest of $300,000 and make annual deposits into a sinking fund that accumulates to five million in 10 years and which earns interest at 0.04. Which bank is offering better term? Explain in detail.

Solutions

Expert Solution

Please refer to below spreadsheet for calculation and answer. Cell reference also provided.

cell reference -

Annual Payment for Bank-A is lower than Annual payout for Bank-B thus, Bank-A is offering better.

Hope this will help, please do comment if you need any further explanation. Your feedback would be appreciated.

jeff jeffy answered 1 year ago

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