Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please answer using the formulas for them Millhouse graduated 5 years ago with a degree in business administration and is currently employed as a middle

Please answer using the formulas for them

Millhouse graduated 5 years ago with a degree in business administration and is currently employed as a middle level manager for the same firecracker company his dad already worked for. His current annual salary of $60,000 has increased at an average rate of 5% per year and is projected to increase at that rate for the future. The firm has had a voluntary retirement savings program in place, whereby, employees can contribute up to 11% of their gross annual salary (up to a maximum of $11,000 per year) and the company will match every dollar that the employee contributes. Unfortunately, Millhouse did not listen to his finance instructor (which is understandable, because you cant really trust those Germans) and has not yet taken advantage of the retirement savings program. He opted instead to buy a new car, rent an expensive apartment and go out to Moes every night. However, with wedding plans on the horizon, Millhouse has finally come to the realization (with the help of his fiance Lisa) that he had better start putting away some money. Millhouse figures that the two largest expenses down the road would be those related to the wedding and down payment on a house. He estimates that the wedding, which will take place in twelve months, should cost about $10,000. Furthermore, he plans to move into a $200,000 house in 5 years and would need 20% for a down payment. Millhouse knows that an automatic payroll deduction is probably the best way to go since he is not a very disciplined investor.

3) How much would Millhouse have to save each month, starting from the end of next month, in order to accumulate enough money for his wedding expenses, assuming a rate of return of 10% compounded monthly?

4) If Millhouse starts saving at the end of next month for the down payment on his house, how much money (in addition to the wedding expenses) will he have to save each month? Assume the same terms as in question 3.

5) If Millhouse saves up a million dollars by the time he retires (at age 65), how much can he withdraw each month in equal dollar amounts, if he figures he will live up to the age of 85 years? Assume that his investment fund yields a rate of return of 8% compounded monthly.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Codes Of Finance

Authors: Vincent Antonin Lépinay

1st Edition

0691151504, 978-0691151502

More Books

Students also viewed these Finance questions

Question

Develop skills for building positive relationships.

Answered: 1 week ago

Question

Describe techniques for resolving conflicts.

Answered: 1 week ago

Question

Give feedback effectively and receive it appropriately.

Answered: 1 week ago