1. A business loan for $200,000 carries an interest rate of 9% compounded monthly. Suppose that the business pays only interest for the first 5 years and then repays the loan amount plus interest in equal monthly installments for the next 5 years.
(a) How much money will be paid each month during the first 5 years?
(b) Calculate the monthly payments during the second 5-year period in order to pay off the $200,000 still owed.
2. Lottery Payoff A lottery winner is to receive $1000 a month for the next 5 years. How much is this sequence of payments worth today if interest rates are 1.8% compounded monthly? How is the difference between this amount and the $60,000 paid out beneficial to the agency running the lottery?