HW on Annuities: As always, show your work and respond in complete sentences where appropriate. Spring 2022 1. Bubba Gump's new shrimp boat cost $70,000. He paid $25,000 up front and signed a 10-year, $45,000 mortgage at 11%. a. What is the amount of each monthly payment? b. Produce a loan amortization schedule for the first four payment periods. c. What is the total interest Bubba will pay on this loan, assuming he pays it according to schedule? d. Let's say he comes into some dough and wants to pay off the loan immediately after making the 27th payment. How much does he owe at that point? 2. When only a lad, Ethan began investing $100 per month into a mutual fund that has earned on average 13% annually for the past 25 years. a. How much is Ethan's account worth today? b. Assume Ethan decides to drop out of society and simply live off this investment. If he continues to earn 13% on the account, what is the maximum amount he can withdraw quarterly, assuming he plans to live another 25 years? 3. Boyer Slick, your insurance agent, proposed to you an annuity contract offered by his firm. It requires an investment of $20,000 and will pay $2,500 per year for the next 20 years. You believe an appropriate required rate of return on an investment of this risk class is 8.5%. a. Evaluate this investment using the present value approach and recommend its acceptance or rejection. b. Now evaluate this investment using the rate of return approach and make the appropriate recommendation based on your finding. 4. When Aunt Tillie kicked the bucket, Frank inherited her prized Avon bottle collection valued at $55,000. Frank recently sold the collection for cold, hard cash and invested the funds in an account earning 8% annually. He wants to take $2,500 per month out of the fund to pay his monthly mobile home/four-wheeler/cable/satellite/snuff bills. His question: How long will the money hold out? That is, how many monthly payments of $2,500 can he withdraw from this fund? 5. Having just won the Toad Suck Flea Market's annual Pork rind-eating contest, Nate must choose to take his winnings in one of two ways: a. $10,000 now, or b. $1,500 per year for life (given his dietary practices, he estimates this at about 15 years) Assuming his required rate of return is 6.5%, what's your recommendation