10. Kristine has $5,000 in an account today that pays 3% interest rate. Two years from now shewithdraws $1,000 from that account to buy a laptop. How much will she have in this account in 6years if she does not make any other deposits or withdrawals? Assume annual compounding.a. $4,844.75b. $7,095.77c. $4,776.21d. $7,164.31e. $4,970.2611. Your grandaunt wants to buy an (ordinary) annuity that will pay her cost of living of $70,000 peryear for 20 years. If the quoted interest rate today is 5% and the annuity compounds monthly,how much does this annuity cost?a. $872,354.72b. $865,404.52c. $883,897.66d. $863,824.1512. After graduation, you get a great job. You budget $1,000 per month towards housing. You'd liketo buy a house. Assume that the interest rate = 4% for a 30-year mortgage.a. How much can you borrow?i. $209,461.24ii. $207,504.40iii. $694,049.40iv. $24,999.98b. Eight years into the mortgage, your company decides to relocate you to Hawaii. Howmuch must you pay the bank to pay off your mortgage? (What is the balance left on theloan?)i. $207,018.52ii. $175,382.89iii. $113,461.24iv. $153,604.91c. Interest paid on mortgages are tax deductible. What is the interest you paid in year 8?i. $12,000.00ii. $7,121.66iii. $4,878.34iv. $7,210.4513. Your grandfather just retired and has $825,000 that he'd like to turn into an annuity. He isconsidering three different annuity options. He's planning to have the annuity last him 15 years.Which option should he pick and why?a. Quarterly ordinary annuity of $24,300.b. Monthly ordinary annuity of $8,050.c. Monthly annuity due of $8,000.14. For eacha. 14. For each of these scenarios, indicate which direction the variable goes:a. If interest rate goes up and you have a set monthly budget for mortgage payments, youcan afford a bigger/smaller houseb.up/down.You found your dream home. If interest rate goes up, your monthly payment goesc.If interest rate goes up, the money you have in your savings account will be worthmore/less in the future.d.If interest rate goes up, you'd have to save more/less per month in order to buy a carworth $20,000 in 3 years.If interest rate goes up, you'll be able to withdraw more/less money per month for a fixednumber of months.You gave $100,000 to the university for scholarships. If interest rate goes up, theuniversity would be able to offer more/less scholarship.g. You have a fixed monthly dollar amount that you'd like to use in your retirement 45years from now. If interest rate goes up, you will have to save more/less per monthtoday.f.h. Joe has saved $1 million and decides to retire today. He is be more certain that he hasenough to spend in his retirement if interest rate goes up/down.You win $5 million in lottery today, and the lottery commission is offering you $250Kevery year for 20 years or a $3 million lump sum today. You are more/less likely to takethe lump sum if market interest rates go up.If the cost of an annuity just went up, that means the interest rate must have goneup/down.1.15. Mark True or False for the following:T/FT/FT/FT/Fa. If a borrower pays twice as much as the required payments every period, she can payoff the load in half the time.b. If the interest rate drops by 50%, the monthly payments of a mortgage would drop by50%.T/Fc. Compared to the nominal rate, the EAR is a better measure of true cost of borrowing.d. The cost of an annuity due is always higher than the cost of an ordinary annuityassuming that the cash flow amount, the number of periods, and the interest rate is thesame.e. The dollar amount of interest paid per month on a mortgage is the same because theinterest rate is fixed.

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