A City can borrow $400,000, at 8% compounded quarterly or can issue $400,000 of bonds paying interest at 4% compounded quarterly. By law the City must create a sinking fund to retire the bonds at the end of 20 years. If the sinking fund earns 8% compounded quarterly, which is cheaper- getting the loan or issuing the bonds- and by how much each payment period?
The question belongs to Accounting and it discusses about calculation of quarterly compounded loan.
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