Emily Dao, 27, just received a promotion at work that increased her annual salary to $74000. In addition to standard compulsory employer superannuation, she is eligible to participate in her employer’s retirement savings plan, workers’ contributions up to 5% of salary. However, Emily wants to buy a new $50000 car in three years, and she wants to have enough money to make a $14000 deposit on the car and finance the balance. Fortunately, she expects a sizeable bonus this year that she hopes will cover that deposit in three years. A wedding is also in her plans. Emily and her boyfriend, Paul, have set a wedding date two years in the future, after he finishes his medical degree. In addition, Emily and Paul want to buy a home of their own as soon as possible. This might be possible because at age 30, Emily will be eligible to access a $100000 trust fund left to her as an inheritance by her late grandfather. Her trust fund is invested in 7% government bonds.

a) Justify Emily’s participation in her employer’s retirement savings plan using the time value-of-money concepts by explaining how much an investment of $20000 will grow to in 40 years if it earns 10% annual interest.

b) Calculate the amount of money that Emily needs to set aside from her bonus this year to cover the deposit on a new car, assuming she can earn 6% annual interest on her savings. What if she could earn 10% annual interest on her savings?

c) What will be the value of Emily’s trust fund at age 60, assuming she takes possession of half of the money ($50000 of the $100000 trust fund) at age 30 for a house deposit, and leaves the other half of the money untouched where it is currently invested?