Question 6 1 pts You are borrowing 5200 now which you will p

Question 6 1 pts \"You are borrowing $5,200 now, which you will pay back at the end of 23 years. You are considering two separate interest rates: a. A fixed 6.1% annual interest rate. b. A variable interest of 4.4% annual interest for the first 5 years: 5.1% annual interest rate for next 5 years, and i% interest rate for the remaining years. Assuming you desire to pay the least amount of money back at the end of 23 years, what value of i makes you indifferent between options a and b? With both options, you make exactly one payment at the end of 23 years. Enter your answer as a percentage between O and 100.\" Question 7 1 pts You plan to start saving for your retirement by depositing $9,513 exactly one year from now. Each year you intend to increase your retirement deposit by 4%. You plan on retiring 28 years from now, and you will receive 6% interest compounded annually. This type of cash flow is called a geometric gradient. The formula to calculate the present worth of a geometric gradient is found in Table 3.6 in the textbook. However, in year 12, you have sudden expenses, and you could not deposit any money at the end of year 12. All of your other deposits remain identical to what you would have deposited if you had not skipped a year. In other words, you still deposit $15,840 at the end of year 13. How much money will you have in your retirement account at the end of 28 years?\"

Solution

6.

Under the option A:

Value of payment after 23 years = 5200*(1+6.1%)^23 = $20298.18

Under the option B:

The value of payment after 23 years = 5200*(1+4.4%)^5 * (1+5.1%)^5 * (1+i%)^13

To make indifferent payment,

Payment under option A = Payment under option B

20298.18 = 5200*(1+4.4%)^5 * (1+5.1%)^5 * (1+i%)^13

20298.18 = 8270.265 * (1+i%)^13

(1+i%)^13 = 2.45435

i = (2.45435)^(1/13) - 1

i = 7.1507%

So, the value of i is 7.1507% to make indifferent in both the options.

Pl. repost the other unanswered questions for their proper answers!