A loan is to be repaid with n=10 payments. The interest rate on the loan is an annual effective rate of 6.7%. The payments are made at the end of each year. The first payment is $1000. Each successive payment is increased by 10% (so the last payment will be 1000*1.1⁹ = 2,357.95). Determine the amount of interest in the 3rd payment. Hint: Find the balance at t=2 then use I₃ = B₂*i. Also note that the "real" rate of interest will be negative.

		< 550
		550 but < 600
		600 but < 650
		650 but < 700
		700

A retirement account, X, has a balance of $500,000 at time t=0. The account earns an annual effective rate of interest of i =6%. At the end of each year for 10 years, the interest earned and an additional $50,000 are withdrawn and placed into a "safer" investment account, Y, that pays an annual effective rate of 4%. Determine the accumulated value in account Y at the end of the 10th year. Note; account A will have a zero balance at the end of the 10th year as all funds will have been transferred to B. Hint: This will involve a level annuity and a decreasing annuity. You may also be able to view it as a (P,Q) annuity.

		<750,000
		750000 but < 800000
		800000 but < 850000
		850000 but < 900000
		900000