Finance Four Questions Assignment 2015

| January 30, 2017

The following questions are worth 5 points each. Please show all work.

a. Inflation is expected to average 4% for the long term and Mr. Smith earned $50,000 this year. How much must he earn in 20 years just to keep up with inflation and maintain the balance between his income and his increasing expenditures?
b. Jamie wants to have $2,000,000 for her retirement in 25 years. How much should she save annually if she thinks she can earn 10% on her investments?
c. The Flemings will need $100,000 annually for 20 years during retirement. How much will they need at retirement if they can earn a 4% rate of return?
d. The Hamptons want to have $3,500,000 for their retirement in 30 years. How much should they save annually if they think they can earn 8% on their investments?

2. (TCO C) You have a stock mutual fund in which you put $3,000 per year. How much will you accumulate in the account in 25 years if the interest rate is 10%?

What if instead you have $4,000 to deposit in the mutual fund earning 10%? If you add $2,000 to that account annually, how much will you have accumulated in 15 years? (Calculate the answer for each option. Show all work.)

3. (TCO C) Leslie has been offered the choice of either a $1,000 rebate or a 5.5%, 48-month loan for the new car she is purchasing. If Leslie will be financing $15,000 and she can get a 7.5%, 48-month loan at her credit union, should she take the $1,000 rebate or the 5.5% loan? (Show all work.) (Points : 20)

4. (TCO C) Lindsey has a job with monthly take-home pay of $3,500. Using the suggested maximum debt safety ratio, what maximum debt burden per month can she assume? (Show all work.) (Points : 10)

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