5-21, 5-22

5-21 5-22 EVALUATING LUMP SUMS AND ANNUITIES Crissie just won the lottery, and she must choose among three award options. She can elect to receive a lump sum today of 561 million to receive 10 end-of-year payments of $95 million, or to receive 30 end-of-year payments of $55 million If she thinks she can eam 7% annually, which should she choose? b. If she expects to earn 8% annually, which is the best choice? c If she expects to eam 9% annually, which option would you recommend? d. Explain how interest rates influence her choice. LOAN AMORTIZATION 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. 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? How much interest must Jan report on Schedule B for the first year? 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