FIN 3331 Critical Thinking Assignment Article

п»їName: Tung Son Nguyen

ID: 1418366

(Bold letters below are my answers)

Emily Smith got a promotion at your workplace that elevated her annual salary to $42, 000. She is permitted participate in her employer's 401(k) retirement plan to which the company matches, dollars for dollar, workers' advantages up to five per cent of salary. However , Emily wants to purchase a new $25, 000 car in three years, and your woman wants to can pay for to make a $10,50, 000 down payment on the car and finance the balance. Luckily, she desires a sizable added bonus this year that she hopes will cover that down payment in 3 years. A wedding is also in her programs. Emily and her boyfriend, Paul, include set a marriage date couple of years in the future, after he completes medical college. In addition , Emily and Paul want to buy a home of their own in 5 years. This could be possible because two years later, Emily will be permitted access a trust finance left to her as an inheritance simply by her overdue grandfather. Her trust finance has$80, 1000 invested in a interest rate of 5%. 1 . Justify Emily's participation in her employer's 401(k) plan using the time value pounds concepts by calculating the actualannual return on her very own contributions. She is going to contribute $1, 000 annually to her 401(k) for quarter of a century and the employer will meet dollar pertaining to dollar. Imagine her 401(k) earns 6% per year pertaining to 25 years and everything contributions are made at the end of each year. The formula that individuals applied here is FVAN = PMT 5. [(1+I)N -1]/I In this case,

PMT = 1, 1000 (Emily's contribution) + one particular, 000 (matching from employer) = two, 000 CHF I sama dengan 0. 06

N sama dengan 25

The result is FVA25 = 109, 729 USD

2 . Calculate the amount of money that Emily needs to put aside from her bonus this year to cover the down payment over a new car, assuming the girl can generate 4% onto her savings. What happens if she may earn 10% on her cost savings? The formulation we used here is PMT = FVAN * I /[(1+I)N -1]

In the first case,

FVA3 = 10, 000 USD

I = 0. 04

And = three or more

The result is PMT = 3, 141 USD. However , since this repayment includes the employer's coordinating which is corresponding to Emily's contribution, Emily needs to set aside a few, 141/2 = 1570. your five USD.

In the second case,

FVA3 = 10, 500 USD

I = 0. 1

And = 3

In this way PMT sama dengan 3, 021 USD. Yet , since this repayment includes the employer's coordinating which is comparable to Emily's contribution, Emily must set aside a few, 021/2 sama dengan 1510. five USD.

3. What will be the cost of Emily's trust fund in 36 years, assuming the girl takes own $20, 500 in 2 years for her wedding, and leaves the remaining amount of money untouched in which it is presently invested? After 2 years, the total amount of the trust fund is definitely 80, 000*(1+0. 05)2 – 20, 1000 = 68, 200 USD. After Emily's wedding, the trust pay for in the next thirty four years can be 68, 200*1. 0534= 358, 278 USD. 4. Suggest at least two conditions that Emily and Paul could take to build up more because of their retirement. Firstly, Emily and Paul should certainly invest her salary even more in 401(k) plan. Currently, Emily only invests 1, 000 CHF per year, which can be 2 . 38% of her yearly income. However , company can fits worker's contribution dollar for dollar approximately 5% of annual wage and Emily needs to make the most of this. Subsequently, Emily should withdraws money from her trust pay for to invest in her 401(k) program since the trust fund provides only five per cent return as the 401(k) plan has 6% return each year. 5. Guess that Emily and Paul purchase a $200, 500 home in 5 years and generate $40, 000 down payment quickly. Find the monthly loan payment assuming that the balance is usually financed by a 3% fixed charge for 15 years. Imagine if its mortgage loan term is 30 years? The balance Emily should cover in the next 15 years is two hundred, 000-40, 000=160, 000 CHF. The month-to-month charge on the balance is usually 3/12=0. 25% = zero. 0025

The quantity of periods is definitely 15*12=180 months

The monthly payment is PMT = one hundred sixty, 000 as well as = you, 104. 93 USD

In case the term is definitely 30 years, the quantity of periods is usually 30*12=360 several weeks The payment per month is PMT = 160, 000 as well as = 674. 57 USD

6. What...

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