A settlement for a workers compensation claim has to pay he injured party an annual salary at beginning of each year for 20 years (last payment at t=19). The first payment at time t=0 is $40,000. Each succeeding payment must include a "cost of living adjustment". Consequently, each succeeding payment is increased by 3% over the previous payment. The insurance company's reserve account earns an annual effective rate of interest of 7.635%. Determine the claim reserve that should be set at time t=0. (i.e. find the present value of the geometric annuity where there inflation rate is 3% and the yield (interest) rate is 7.635%). Hint: You can use the "real" interest rate to help you solve this problem.

		<500000
		500000 but < 550000
		>550000 but < 600000
		600000 but < 650000
		>650000

A loan is to be repaid with 10 annual payments of size $711.89 made at at the end of each year. The loan has an annual effective rate of i. The amount of principal in the 6th payment is $507.57. Determine i. Hint: As the payments are level, there is a formula for the amount of principal in the 6th payment that will allow you to algebraically solve for i.

		4%
		5%
		6%
		7%
		8%