5. If you took out a $10,000 loan (education loan) today from citizens Savings Bank at 12 percent (compounded annually) and don't have to pay it back for 20 years,

A. How much money would you owe the bank in 20 years?

B. How much money would you owe the bank if the interest was compounded monthly (use a calculator)?

C. How much more interest would you pay if interest is compounded monthly (part C) rather than compounded annually (part A)?

6. You have just won the Texas Lottery which provides four alternative methods and amounts of payments. You can choose to receive:

A1 = $64,000 per year for 10 years with payments to be received at the end of each year;

A2 = $240,000 now and then $240,000 at the beginning of the sixth year;

A3 = $380,000 now; or

A4 = $990,000 ten years from now.

Problem:

Find the present value of each of the four alternatives and rank these four alternatives from first choice to last choice if you have an investment opportunity paying 13% annually.

B. Rank these alternatives if your only investment opportunity earns 6%. Does the ranking change?