(1 point) Michael and Ashley are married, and they are filing their 2018 federal income taxes jointly. Suppose $75 is deducted from each of Michaels monthly paychecks for health insurance, and $100 is deducted from each of Ashleys monthly paychecks for health insurance. Recall from Part 2 of the project that Michael and Ashley make contributions to their 401(k) plans with each of their monthly paychecks. When finding their annual taxable income, how much are the benefits?

(1 point) When finding their annual taxable income, how much are the deductions? Here is the relevant information:

For 2018, the standard deduction for a married couple filing jointly is $24,000.

Michael and Ashley paid $2,514.33 in state taxes and $2,457.00 in local taxes for 2018.

Recall that Michael and Ashley bought a house in Part 3 of the project, and the mortgage interest and property taxes are itemized deductions. For simplicity, assume that their first mortgage payment occurred on January 1, 2018.

Recall that Michael and Ashley have a student loan from Part 1 of the project. Student loan interest is a special case. They can claim the student loan interest deduction (Links to an external site.)Links to an external site.even if they don't itemize their deductions. For simplicity, assume that their first student loan payment occurred on January 1, 2018.

(2 points) Did Michael and Ashley claim the standard deduction or itemize their deductions? Explain your decision, and show all of your calculations.

(1 point) Find their annual taxable income for 2018. Use their salaries given in Part 2 of the project.

(1 point) Calculate their federal income taxes for 2018. Use the following tax rate chart:

If Taxable Income Is:	The Tax Is:
Not over $19,050	10% of the taxable income
Over $19,050 but not over $77,400	$1,905 plus 12% of the excess over $19,050
Over $77,400 but not over $165,000	$8,907 plus 22% of the excess over $77,400
Over $165,000 but not over $315,000	$28,179 plus 24% of the excess over $165,000
Over $315,000 but not over $400,000	$64,179 plus 32% of the excess over $315,000
Over $400,000 but not over $600,000	$91,379 plus 35% of the excess over $400,000
Over $600,000	$161,379 plus 37% of the excess over $600,000

(1 point) Suppose $227.92 was withheld from each of Michael's monthly paychecks in 2018 for federal income taxes, and $250.40 was withheld from each of Ashley's monthly paychecks in 2018 for federal income taxes. Will they receive a refund or owe money to the IRS after they file their taxes?

(1 point) How much money will they receive as a refund or have to pay to the IRS after they file their taxes?

(2 points) Calculate their annual FICA taxes for 2018. Recall that FICA taxes are based on their gross income ? health insurance deductions. FICA taxes include 6.2% for Social Security and 1.45% for Medicare.

OTHER INFO

part 2

michael earns $36,000 per year, and he's paid monthly. His employer offers a 401(k) plan with 50% matching up to 10% of salary. What is the minimum amount of money that Michael needs to contribute to his 401(k) each month to get the maximum contribution from his employer?

Note: Round your final answer to two decimal places. Do NOT include a dollar sign in your final answer.

Correct!

300.0 (with margin: 0.0)

Michael needs to contribute at least 10% of his salary to get the maximum contribution from his employer.

Therefore, the minimum amount that Michael needs to contribute each month = 0.1 x $36,000 / 12 = $300

Question 2

1 / 1 pts

Suppose Michael contributes the minimum amount of money to his 401(k) to get the maximum contribution from his employer. How much money will his employer contribute to his 401(k) each month?

Note: Round your final answer to two decimal places. Do NOT include a dollar sign in your final answer.

Correct!

150.0 (with margin: 0.0)

Michael's employer will match 50% of Michael's contribution up to 10% of his salary.

Therefore, the maximum amount that his employer will contribute each month = 0.5 x $300 = $150.

Question 3

2 / 2 pts

Suppose Michael contributes the minimum amount of money to his 401(k) to get the maximum contribution from his employer. Michael is 26 years old, and he would like to retire when he's 65 years old. How much money will Michael accumulate by the time he retires? Assume his investments will earn an interest rate of 6%, which is a reasonable inflation-adjusted return for a diversified investment portfolio.

Note: Round your final answer to two decimal places. Do NOT include a dollar sign in your final answer.

Correct!

838879.57 (with margin: 0.0)

Future Value of an Ordinary Annuity

Step 1: Find PMT. PMT = total monthly contribution = Michael's monthly contribution + his employer's monthly contribution PMT = $300 + $150 = $450

Step 2: Find sn/i.

n = 39 x 12 = 468 i = 0.06/12

Step 3: Find FV.

FV = ($450)(1864.176824...) FV = $838,879.57

Question 4

1 / 1 pts

Ashley earns $48,000 per year, and she's paid monthly. Ashleys employer offers a 401(k) plan, and her employer will contribute 8% of her salary provided Ashley contributes at least 6%. What is the minimum amount of money that Ashley needs to contribute to her 401(k) each month to get the contribution from her employer?

Note: Round your final answer to two decimal places. Do NOT include a dollar sign in your final answer.

Correct!

Correct Answers

240.0 (with margin: 0.0)

Ashley needs to contribute at least 6% of her salary to get the contribution from her employer.

Therefore, the minimum amount that Ashley needs to contribute each month = 0.06 x $48,000 / 12 = $240.

Question 5

1 / 1 pts

Suppose Ashley contributes the minimum amount of money to her 401(k) to get the contribution from her employer. How much money will her employer contribute to her 401(k) each month?

Note: Round your final answer to two decimal places. Do NOT include a dollar sign in your final answer.

Correct!

Correct Answers

320.0 (with margin: 0.0)

Ashley's employer will contribute 8% of her salary provided Ashley contributes 6%.

Therefore, the amount that her employer will contribute each month = 0.08 x $48,000 / 12 = $320.

Question 6

2 / 2 pts

Suppose Ashley contributes the minimum amount of money to her 401(k) to get the contribution from her employer. Ashley is 26 years old, and she would like to retire when she's 65 years old. How much money will Ashley accumulate by the time she retires? Assume her investments will earn an interest rate of 6%, which is a reasonable inflation-adjusted return for a diversified investment portfolio.

Note: Round your final answer to two decimal places. Do NOT include a dollar sign in your final answer.

Correct!

Correct Answers

1043939.02 (with margin: 0.0)

Future Value of an Ordinary Annuity

Step 1: Find PMT. PMT = total monthly contribution = Ashley's monthly contribution + her employer's monthly contribution PMT = $240 + $320 = $560

Step 2: Find sn/i.

n = 39 x 12 = 468 i = 0.06/12

Step 3: Find FV.

FV = ($560)(1864.176824...) FV = $1,043,939.02

Question 7

0.5 / 2 pts

Will Michael and Ashley have enough money to retire when they're 65 years old? Justify your answer. You should consider the 4% RuleLinks to an external site. when deciding whether their nest egg will be sufficient.

Your Answer:

Yes they will have enough money by the age of 65 because she's earning more than what it would be at market rate which is 4% and she's earning it at 6%, thus above market rate and reaching her goal faster.

Yes. Michael and Ashley will have a total nest egg of $838,879.57 + $1,043,939.02 = $1,882,818.59 when they retire at age 65. The 4% Rule says that they can withdraw 4% of their initial nest egg each year in retirement. Therefore, they can withdraw 0.04 x $1,882,818.59 = $75,312.74 each year. This withdrawal amount is close to 90% of their current salaries combined, so they should have enough money to cover their living expenses in retirement. Their living expenses will probably be lower in retirement because they will stop making 401(k) contributions, collect Social Security, pay less in taxes, and hopefully live in a paid-off house.

Inflation does not need to be considered when comparing the amount they can withdraw in retirement to their current salaries. The 6% interest rate for their investments was already adjusted for inflation. Also, Michael and Ashley will probably increase their 401(k) contributions as they receive cost-of-living raises at their jobs. Once they're retired, the 4% Rule allows them to increase their withdrawals to keep pace with inflation. For example, if the inflation rate during their first year of retirement is 3%, then they can withdraw $75,312.74 x 1.03 = $77,572.12 during their second year of retirement.

Note that the 4% Rule only works if Michael and Ashley adhere to the rule every single year. They cannot splurge on a major purchase one year. They might not have enough money if they experience high medical costs and emergencies in retirement. To mitigate this concern, they could set aside some cash in a separate account just for emergencies. If they have a paid-off house, they will be able to use the proceeds from the sale of the house for nursing home expenses.

Finally, the 4% Rule is valid for about 30 years based on historical data. While past performance does not necessarily predict future performance, studying history is a good strategy if you don't have a crystal ball! The 4% Rule allows retirees to increase withdrawals with inflation AND make withdrawals for 30 years because the remaining nest egg that has not been withdrawn yet continues to earn interest.

According to the 4% Rule, how much money will they be able to withdraw from their 401(k)s each year in retirement? Will this withdrawal amount cover their regular living expenses?

part 1

Michael and Ashley have decided to borrow $25,165 to buy a new Toyota Prius. They were able to obtain a 5-year loan with an interest rate of 2.99%. Find their monthly payment.

Note: Round your final answer to two decimal places. Do NOT include a dollar sign in your final answer.

Correct!

Correct Answers

452.07 (with margin: 0.0)

Present Value of an Ordinary Annuity

Step 1: Find an/i.

n = 5 x 12 = 60 i = 0.0299/12

Step 2: Find PMT.

$25,165 = PMT(55.66612341...) PMT = $452.07

Question 2

2 / 2 pts

Michael and Ashley owe $35,000 on their student loans at an interest rate of 5%. The term is 20 years. Find their monthly payment.

Note: Round your final answer to two decimal places. Do NOT include a dollar sign in your final answer.

Correct!

Correct Answers

230.98 (with margin: 0.0)

Present Value of an Ordinary Annuity

Step 1: Find an/i.

n = 20 x 12 = 240 i = 0.05/12

Step 2: Find PMT.

$35,000 = PMT(151.5253131...) PMT = $230.98

Question 3

0.67 / 1 pts

Construct the first row of the amortization table for their student loans.

How much of their first payment goes toward interest?

How much of their first payment goes toward principal?

After making their first payment, what is the remaining balance?

Note: Round your answers to two decimal places. Do NOT include dollar signs in your answers.

Answer 1:

Correct!145.83

Answer 2:

Correct!85.15

Answer 3:

You Answered34769.02

Correct Answer

34914.85

Correct Answer

34,914.85

Interest: I = PRT I = ($35,000)(0.05)(1/12) = $145.83

Principal: Principal = Payment - Interest Principal = $230.98 - $145.83 = $85.15

Remaining Balance: Remaining Balance = Previous Balance - Principal Remaining Balance = $35,000 - $85.15 = $34,914.85

Question 4

0 / 1 pts

Construct the second row of the amortization table for their student loans.

How much of their second payment goes toward interest?

How much of their second payment goes toward principal?

After making their second payment, what is the remaining balance?

Note: Round your answers to two decimal places. Do NOT include dollar signs in your answers.

Answer 1:

You Answered144.87

Correct Answer

145.48

Answer 2:

You Answered86.11

Correct Answer

85.50

Correct Answer

85.5

Answer 3:

You Answered34538.04

Correct Answer

34829.35

Correct Answer

34,829.35

Interest: I = PRT I = ($34,914.85)(0.05)(1/12) = $145.48

Principal: Principal = Payment - Interest Principal = $230.98 - $145.48 = $85.50

Remaining Balance: Remaining Balance = Previous Balance - Principal Remaining Balance = $34,914.85 - $85.50 = $34,829.35

Question 5

0 / 2 pts

Continue constructing the amortization table for their student loans until you have completed 12 rows of the table. What is the total amount of interest that Michael and Ashley will pay on their student loans in the first year?

Note: Round your final answer to two decimal places. Do NOT include a dollar sign in your final answer.

You Answered

Correct Answers

1726.25 (with margin: 0.0)

Payment #1: PMT = $230.98; I = $145.83; Principal = $85.15; Balance = $34,914.85

Payment #2: PMT = $230.98; I = $145.48; Principal = $85.50; Balance = $34,829.35

Payment #3: PMT = $230.98; I = $145.12; Principal = $85.86; Balance = $34,743.49

Payment #4: PMT = $230.98; I = $144.76; Principal = $86.22; Balance = $34,657.27

Payment #5: PMT = $230.98; I = $144.41; Principal = $86.57; Balance = $34,570.70

Payment #6: PMT = $230.98; I = $144.04; Principal = $86.94; Balance = $34,483.76

Payment #7: PMT = $230.98; I = $143.68; Principal = $87.30; Balance = $34,396.46

Payment #8: PMT = $230.98; I = $143.32; Principal = $87.66; Balance = $34,308.80

Payment #9: PMT = $230.98; I = $142.95; Principal = $88.03; Balance = $34,220.77

Payment #10: PMT = $230.98; I = $142.59; Principal = $88.39; Balance = $34,132.38

Payment #11: PMT = $230.98; I = $142.22; Principal = $88.76; Balance = $34,043.62

Payment #12: PMT = $230.98; I = $141.85; Principal = $89.13; Balance = $33,954.49

Total Interest = $145.83 + $145.48 + $145.12 + $144.76 + $144.41 + $144.04 + $143.68 + $143.32 + $142.95 + $142.59 + $142.22 + $141.85 = $1,726.25

Question 6

1.6 / 2 pts

Explain how you constructed the amortization table for their student loans. Include the formulas that you used. Show your calculations for at least one row of the table.

Your Answer:

For the amortization table I took the calculation from problem #2 for the monthly payment then I ysed I=PRT and to find the interest after every monthly payment was done.

1st row:

Payment - 230.98

Interest - found by taking the loan amount x .05 x 1/12 = 145.83

Principal - payment minus interest = 85.15

Balance = i took the monthly payment and subtracted it from the loan itself

Use I = PRT to find the amount of the payment that goes toward interest. Use the current balance for P, 0.05 for R, and 1/12 (i.e. one month) for T. Then, find the amount of the payment that goes toward principal by subtracting the interest from the payment. Finally, the balance after making the payment is the previous balance minus the principal. Continue these calculations for each row of the table.

Here are the formulas and calculations for the first row:

I = PRT I = ($35,000)(0.05)(1/12) = $145.83

Principal = Payment - Interest Principal = $230.98 - $145.83 = $85.15

Remaining Balance = Previous Balance - Principal Remaining Balance = $35,000 - $85.15 = $34,914.85

To find the remaining balance, you should only subtract the principal from the previous balance. The interest portion does not pay down the loan balance.

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