On January 27, 2017, company XYZ takes a 10-year loan of $100,000 at 7% nominal annual rate compounded semi-annually. Starting 6 months after the loan was made, the company must make interest-only payments to the lender, and accumulate the principal to be repaid in a sinking fund that earns a nominal annual interest of 2%, compounded semi-annually. What will the company’s semi-annual outlay be in relation to the loan?
[Hints: 1. The semi-annual outlay is the sum of the interest-only payment and the amount that the company has to deposit in the sinking find. 2. Convert the interest rates to equivalent rates that are easiest to use.]