As part of your personal budgeting process, you have determined that at the end of each of the next five years you will incur significant maintenance expenses on your home. You'd like to cover these expenses by depositing a lump sum in an account today that earns 8%. You will gradually draw down this account each year as maintenance bills come due.

End of YearBudget Shortfall

1.................$ 5,000

2.................. 4,000

3................. 6,000

4................. 10,000

5................. 3,000

a. How much money must you deposit today to cover all of the expenses?

b. What effect does an increase in the interest rate have on the amount calculated in part (a)? Explain.