Answer to Question #73170 in Finance for Johny

Question

1. What lump sum of money must be deposited into a bank account at present time so that $500 per month can be withdrawn for five years, with the first withdrawal scheduled for six years from today? The interest rate is 12% per year compounded monthly.

2. A woman arranges to repay $5,000 bank loan in 15 equal payments at a 10% effective annual interest rate. Immediately after her fifth payment, she borrows another $2,500, also at 10% per year. When she borrows the $2,500, she talks the banker into letting her repay the remaining debt of the first loan and the entire amount of the second loan in 12 equal annual payments. The first of these payments would be one year after she receives the $2,500. Compute the amount of each of payments.