1. For Ned Masterson, the last few years have been a financial nightmare. It all started when he lost his job. Because he had no job and no income, he began using his credit cards to obtain the cash needed to pay everyday living expenses. Finally, after an exhaustive job search, he has a new job that pays $42,000 a year. While his take-home pay is $2,450 a month, he must now establish an emergency fund, pay off his $6,200 credit card debt, and start saving the money needed to begin an investment program. a. If monthly expenses are $1,750, how much money should Ned save for an emergency fund? b. Ned has decided that he will save $2,500 a year for the next five years in order to establish a long-term investment program. If his savings and investments earn 2 percent each year, how much money will he have at the end of five years? (Use the information in this chapter's Figure It Out! feature to answer this question.) Figure It Out! Using the Time Value of Money to Calculate Investment Returns How much is $2,400 invested each year at 7 percent for 25 years worth at the end of 25 years? ANSWER: While this problem can be solved using a future value formula or a future value tableboth illustrated in the Chapter 1 Appendix-today many people use a future value calculator that can be found on many websites. To work this problem, follow these steps: 1. Use an Internet search engine such as Google or Yahoo! and enter the term future value calculator. (To see how easy it is to work the above problem, go to keisan.casio.com and enter future value of periodic payments in the search box.) 2. Enter the interest rate, number of years, annual payment frequency made at the end of each year, and payment amount. 3. For most Internet calculators, once all the information has been entered, you simply click on execute" or "calculate." 4. The answer for the sample problem is $151,798. NOW IT'S YOUR TURN. Using an Internet future value calculator, determine the future value of a $2,400 annual investment that earns 10 percent a year for 25 years. Tryout problem answer: $236,033 1. For Ned Masterson, the last few years have been a financial nightmare. It all started when he lost his job. Because he had no job and no income, he began using his credit cards to obtain the cash needed to pay everyday living expenses. Finally, after an exhaustive job search, he has a new job that pays $42,000 a year. While his take-home pay is $2,450 a month, he must now establish an emergency fund, pay off his $6,200 credit card debt, and start saving the money needed to begin an investment program. a. If monthly expenses are $1,750, how much money should Ned save for an emergency fund? b. Ned has decided that he will save $2,500 a year for the next five years in order to establish a long-term investment program. If his savings and investments earn 2 percent each year, how much money will he have at the end of five years? (Use the information in this chapter's Figure It Out! feature to answer this question.) Figure It Out! Using the Time Value of Money to Calculate Investment Returns How much is $2,400 invested each year at 7 percent for 25 years worth at the end of 25 years? ANSWER: While this problem can be solved using a future value formula or a future value tableboth illustrated in the Chapter 1 Appendix-today many people use a future value calculator that can be found on many websites. To work this problem, follow these steps: 1. Use an Internet search engine such as Google or Yahoo! and enter the term future value calculator. (To see how easy it is to work the above problem, go to keisan.casio.com and enter future value of periodic payments in the search box.) 2. Enter the interest rate, number of years, annual payment frequency made at the end of each year, and payment amount. 3. For most Internet calculators, once all the information has been entered, you simply click on execute" or "calculate." 4. The answer for the sample problem is $151,798. NOW IT'S YOUR TURN. Using an Internet future value calculator, determine the future value of a $2,400 annual investment that earns 10 percent a year for 25 years. Tryout problem answer: $236,033