Jinhee Ju, 27, just received a promotion at work that increased her annual salary to $40,000. She is eligible to participate in her employer's 401(k) plan, to which the employer matches dollar-for-dollar workers' contributions up to five percent of salary. However, Jinhee wants to buy a new $27,000 car in 4 years, and she wants to save enough money to make a $9,000 down payment on the car and finance the balance. Also in her plans is a wedding. Jinhee and her boyfriend, Paul, have set a wedding date 2 years in the future, after he finishes medical school. Paul will have $100,000 of student loans to repay after graduation. But both Jinhee and Paul want to buy a home of their own as soon as possible. This might be possible because at age 30, Jinhee will be eligible to access a $48,000 trust fund left to her as an inheritance by her late grandfather. Her trust fund is invested in 6 percent government bonds.

1. Justify Jinhee's participation in her employer's 401(k) plan using the time value of money concepts.

a) Assuming that Jinhee and her employer both contribute five percent of her salary to her 401(k), the amount contributed each year will be $____.

b) If Jinhee's salary remains fixed for 40 years and she earns 8% annually on her 401(k) account, then the value of the account in 40 years would be $____.

2. Calculate the amount Jinhee needs to save each year for the down payment on a new car, assuming she can earn 6 percent on her savings. Calculate how much she will need to save on a monthly basis, assuming monthly compounding. For each scenario, how much of her down payment will come from interest earned?

a) The amount Jinhee needs to save each year for the down payment on the car, assuming she can earn 6 percent on her savings, is $____.

b) The amount Jinhee needs to save each month for the down payment on the car, assuming she can earn 6 percent on her savings, is $____.

c) If Jinhee saves for the down payment by putting money away each year, the amount of interest earned by the time she needs the money for the down payment is $____.

d) If Jinhee saves for the down payment by putting money away each month, the amount of interest earned by the time she needs the money for the down payment is

$____.

e) If Jinhee saves for the down payment by puttting money away each month rather than each year, she will earn

$____ more in interest over the accumulation period.

3. What will be the value of Jinhee's trust fund at age 60, assuming she takes possession of half the money at age 30 for a house down payment and leaves the other half of the money untouched where it is currently invested?

a) If Jinhee leaves half the money in her trust fund when she receives it at age 30, the value of the trust fund when she is age

60, assuming that she continues to earn the current rate of return, will be $____.