Question #6 Questions (30 points) You have and spend the next two years in school instead of working. worked in the financial industry for five years after Stevens, when Wharton Business School called o its MBA program. If you choose to attend, you you will have to quit your job (a). You were thrifty in the past 5 years and deposited $1,000 each month to a savings account Your savings earn an APR of 2.4% compounded monthly. How much money do you have today in that savings account? Denote that amount as X. (6 points). (b). Assume in the next 2 years (24 months), ou intend to withdraw from that savings account a constant amount Y each month and use it as living expense while you attend Wharton. The remaining fund in that account will still earn an APR of 2.4%. Your intention is to exhaust all the funds in that account by month 24. How is Y related to X? What is the amount of Y? (6 points) Hiut: Draw the time line, describe the nature of the problem, provide the math formula for Y in terms of X, and finally solve for Y using the financial calculator. (c). Assume you need to take out a 15-year student loan of $100,000 to pay for the tuition. The kon has an APR of 4% with monthly compounding interests. You have a 2-year break period (you do not make repayment while at Wharton), and after that the loan must be repaid in 1312-qual monthly payments. The annual interest rate on the kan is 4% of the unpaid balance (compo.indd monthly). This interest will also apply and accumulate during the break period. What is the amount of the mouthly payments (after the beeak period)? Show your work. (6 points). -Hint: compute the total unpaid balance by the end of year 2, and treat that amount as the prin- cipal for a 13-year . (d). You hase a personal discount rate (APR) of 2.4% compounded matthly. If you decline the admission offer and continue with your current job, you are expected to earn an anmal salary of 120,000 (S10,000 per month) for the next 40 years. Assume after Wharton, you annual salary will be SZ (Z 12 per month) for the next 38 years. You are trying to find out the minimum level of sz that makes Wharton MBA a worthwhile investment I. Compute the present value of your future salaries if you turned down the admission offer. Denote it as A. (5 points). 2. If you choose to skip Wharton, you do not use up money in your savings account discussed in part (a) and part (b). What is the present value of that saving, denote it as B? (Hint: this is easy, 1 point). 3. Compute the present value, denote it as C, of your student loan payments computed in part (e) between year 3 to year 15. Note, you should use your personal discount rate of 24% mtrol of the loan interest rate of 4%. (3 points). late tbe led fanction of A. B, and C 4. Show the mathematical formula that relate Z to A, B, and C.nnd points. Hint: You can provide algrebraic expressions for 2 as a
