John just graduated with a B.S. in engineering and landed a new job with a starting salary of $48.000. There are a number of things that he would like to do with his newfound "wealth. For starters, he needs to begin repaying his student loan (totaling $20,000) and he'd like to reduce some outstanding balances on credit cards (totaling $5000). John also needs to purchase a car to get to work and would like to put money aside to purchase a condo in future. Last, but not least, he wants to put some money aside for his eventual retirement. He needs to do some financial planning for which he has selected a 10-year time frame. At the end of 10 years, he'd like to have paid off his current student loan and credit card dept., as well as have accumulated $40,000 for downtown payment on a condo. If possible, John would like to put aside 10% yearly of his take home salary for retirement. He has gathered the following information to assist him in planning: Student loans are typically repaid over a period of 10 years. The interest rate on John's loan is 7% per year. Credit cards vary greatly in the interest rate charged. Typical interest rate 18% per year, and payments are usually computed using a 10-year repayment period. Car loans are usually repaid over three, four or five years. The interest rate on car loans can be as low as 2.9% or as high as 12%. As a first-time car buyer, John can secure a $15,000 car loan at 9% per year, to be paid over 5 years. Assume the car will be replaced with the same cost after 5 year. Assume $5000/year for insurance, gas and maintenance. A 30-year fixed rate mortgage is currently going for 5.75-6.0% per year. If John can save enough to make 20% down payment on the purchase of his condo, which he would like to do, he can avoid private mortgage insurance that can cost as much as $600 per year. Investment opportunities can provide variable returns. safe investments can guarantee 6% per year. Assume John will spend $16.000/year on housing, food phone, entertainment and others John's parents have reminded him that his monthly take home pay will be reduced by income taxes and benefit deductions. He should not count on being able to spend more than 80% of his gross salary John is aware that he will not explicitly account for price increase over the next years; however, neither he has increased his annual salary. He is hopeful that, if he works hard, his annual salary increases will at least cover the increase in the cost of living. Yes, because he will cover all his major areas of expenses, and will have about $2700 extra per year to cover for unanticipated costs Yes, because he will cover all his major areas of expenses, and will have about $3900 extra per year to cover for unanticipated costs Yes, because he will cover all his major areas of expenses, and will have about $2100 extra per year to cover for unanticipated costs Yes, because he will cover all his major areas of expenses, and will have about $4060 extra per year to cover for unanticipated costs John just graduated with a B.S. in engineering and landed a new job with a starting salary of $48.000. There are a number of things that he would like to do with his newfound "wealth. For starters, he needs to begin repaying his student loan (totaling $20,000) and he'd like to reduce some outstanding balances on credit cards (totaling $5000). John also needs to purchase a car to get to work and would like to put money aside to purchase a condo in future. Last, but not least, he wants to put some money aside for his eventual retirement. He needs to do some financial planning for which he has selected a 10-year time frame. At the end of 10 years, he'd like to have paid off his current student loan and credit card dept., as well as have accumulated $40,000 for downtown payment on a condo. If possible, John would like to put aside 10% yearly of his take home salary for retirement. He has gathered the following information to assist him in planning: Student loans are typically repaid over a period of 10 years. The interest rate on John's loan is 7% per year. Credit cards vary greatly in the interest rate charged. Typical interest rate 18% per year, and payments are usually computed using a 10-year repayment period. Car loans are usually repaid over three, four or five years. The interest rate on car loans can be as low as 2.9% or as high as 12%. As a first-time car buyer, John can secure a $15,000 car loan at 9% per year, to be paid over 5 years. Assume the car will be replaced with the same cost after 5 year. Assume $5000/year for insurance, gas and maintenance. A 30-year fixed rate mortgage is currently going for 5.75-6.0% per year. If John can save enough to make 20% down payment on the purchase of his condo, which he would like to do, he can avoid private mortgage insurance that can cost as much as $600 per year. Investment opportunities can provide variable returns. safe investments can guarantee 6% per year. Assume John will spend $16.000/year on housing, food phone, entertainment and others John's parents have reminded him that his monthly take home pay will be reduced by income taxes and benefit deductions. He should not count on being able to spend more than 80% of his gross salary John is aware that he will not explicitly account for price increase over the next years; however, neither he has increased his annual salary. He is hopeful that, if he works hard, his annual salary increases will at least cover the increase in the cost of living. Yes, because he will cover all his major areas of expenses, and will have about $2700 extra per year to cover for unanticipated costs Yes, because he will cover all his major areas of expenses, and will have about $3900 extra per year to cover for unanticipated costs Yes, because he will cover all his major areas of expenses, and will have about $2100 extra per year to cover for unanticipated costs Yes, because he will cover all his major areas of expenses, and will have about $4060 extra per year to cover for unanticipated costs
