Jan sold her house on December 31 and took a $10,000 mortgage as part

Jan sold her house on December 31 and took a $10,000 mortgage as part of the payment. The 10-year mortgage has a 10% nominal interest rate, but it calls for semiannual payments beginning next June 30. Next year Jan must report on Schedule B of her IRS form 1040 the amount of interest that was included in the two payments she received during the year.a.

What is the dollar amount of each payment Jan receives?b.How much interest was included in the first payment? How much repayment of principal was included? How do these values change for the second payment?c.How much interest must Jan report on Schedule B for the first year?

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Will her interest income be the same next year?d.If the payments are constant, why does the amount of interest income change over time?

2. Crissie just won the lottery , and she must choose between three award options. She can elect to receive a lump sum today $61 million, to receive 10 end-of-year payments of $9.5 million, or to receive 30 end-of-year payments of $5.5 million.a. If she thinks she can earn 7% annually, which should she choose?b. If she thinks she can earn 8% annually, which should she choose?c. If she thinks she can earn 9% annually, which should she choose?d.

Explain how interest rates influence the optimal choice.3.Erika and Kitty, who are twins, just received $30,000 each for their 25th birthdays. They both have aspirations to become millionaires. Each plans to make a $5,000 annual contribution to her “early retirement fund” on her birthday, beginning a year from today. Erika opened an account with the Safety First Bond Fund, a mutual fund that invests in high quality bonds whose investors have earned 6% per year in the past.

Kitty invested in the New Issue Bio-Tech Fund, which invests in small, newly issued bio-tech stocks and whose investors on average have earned 20% per year in the fund’s relatively short history. Round all answers to the nearest hundredth.a. If two women funds earn the same returns in the future as in the past, how old will she be when she becomes a millionaire?b.

How large would Erika’s annual contributions have to be for her to become a millionaire at the same age as Kitty, assuming their expected returns are realized?c. is it rational or irrational for Erika to invest in the bond fund rather than in stocks?4.You plan to make five deposits of $1,000 each, one every 6 months, with the first payment being made in 6 months.

You will then make no more deposits. If the bank pays 4% nominal interest, compounded semiannually, how much will be in your account after 3 years?5.One year from today you must make a payment of $10,000. To prepare for this payment, you plan to make two equal quarterly deposits (at the end of Quarters 1 and 2) in the bank that pays 4% nominal interest compounded quarterly. How large must each of the two payments be?