Case 7: Better Late Than Never
Case 7: Its better late than never!
1. What was Ryan’s starting salary? How much could he have contributed to the voluntary savings plan in his first year of employment?
RATE
NPR
FV
PV
YEAR CONTRIBUTION TO SAVINGS PLAN .05 1 70,000 66,667 5th $7,333
.05 2 70,000 63,492 4th $6,984
.05 3 70,000 60,469 3rd $6,651
.05 4 70,000 57,849 2nd $6,363
.05 5 70,000 54,847 1st $6,033
Ryan’s first year salary at this company was $54,847 and he could have contributed $6,033 in his first year of employment. These were found by using the present value formula for all five years.
2. Had Ryan taken advantage of the company’s voluntary retirement plan up to the maximum, every year for the past five years, how much money would he currently have accumulated in his retirement account, assuming a nominal rate of return of 7%? How much more would his investment value have been worth had he opted for a higher risk alternative (i.e. 100% in common stocks), which was expected to yield an average compound rate of return of 12% (A.P.R.)?
YEAR
SALARIES
CONTRIBUTION CONTRIBUTION TO SAVINGS PLAN 5th 66,667 x11% =$6,033
4th 63,492 x11% =$6,363
3rd 60,469 x11% =$6,651
2nd 57,849 x11% =$6,984
1st 54,847 x11% =$7,333
Total $33,364
FV Formula
Rate: .07 NPER: 5 PMT: 0 PV: -33364
Current accumulated in retirement account= $46,794
$46,794- $33,364= $13,430
FV Formula
Rate: .12 NPER: 5 PMT: 0 PV: -33364
Net worth of average retirement account= $58,798
If Ryan had take advantage of the retirement plan, he would currently have accumulated $13,430 assuming at rate of return of 7%. Assuming a rate of 12%, he would have been worth $58,798.
4. How much would Ryan have to save each month, starting from the end of the next month, in order to accumulate enough money for his wedding expenses, assuming that his investment fund is expected to yield a rate of return of 7% per year?
Wedding Expense $15,000 x 1.04= $15,600
PMT
1. What was Ryan’s starting salary? How much could he have contributed to the voluntary savings plan in his first year of employment?
RATE
NPR
FV
PV
YEAR CONTRIBUTION TO SAVINGS PLAN .05 1 70,000 66,667 5th $7,333
.05 2 70,000 63,492 4th $6,984
.05 3 70,000 60,469 3rd $6,651
.05 4 70,000 57,849 2nd $6,363
.05 5 70,000 54,847 1st $6,033
Ryan’s first year salary at this company was $54,847 and he could have contributed $6,033 in his first year of employment. These were found by using the present value formula for all five years.
2. Had Ryan taken advantage of the company’s voluntary retirement plan up to the maximum, every year for the past five years, how much money would he currently have accumulated in his retirement account, assuming a nominal rate of return of 7%? How much more would his investment value have been worth had he opted for a higher risk alternative (i.e. 100% in common stocks), which was expected to yield an average compound rate of return of 12% (A.P.R.)?
YEAR
SALARIES
CONTRIBUTION CONTRIBUTION TO SAVINGS PLAN 5th 66,667 x11% =$6,033
4th 63,492 x11% =$6,363
3rd 60,469 x11% =$6,651
2nd 57,849 x11% =$6,984
1st 54,847 x11% =$7,333
Total $33,364
FV Formula
Rate: .07 NPER: 5 PMT: 0 PV: -33364
Current accumulated in retirement account= $46,794
$46,794- $33,364= $13,430
FV Formula
Rate: .12 NPER: 5 PMT: 0 PV: -33364
Net worth of average retirement account= $58,798
If Ryan had take advantage of the retirement plan, he would currently have accumulated $13,430 assuming at rate of return of 7%. Assuming a rate of 12%, he would have been worth $58,798.
4. How much would Ryan have to save each month, starting from the end of the next month, in order to accumulate enough money for his wedding expenses, assuming that his investment fund is expected to yield a rate of return of 7% per year?
Wedding Expense $15,000 x 1.04= $15,600
PMT