questions 39-47

For Problems 39-42, consider Social Security and Medicare payroll Name deductions. As of December, 2018, the federal government requires employees to pay Social Security tax of 6.2% on the first $128,400 of annual Class wages and Medicare tax of 1.45% on all wages (no limit). The amounts are SSSSSSSSS withheld from their pay and remitted to the federal government. Employers ANSWERS must contribute a matching amount. Assume that an employee earns $55,000 each year during a 40-year working career. 39. Soc Sec 39. Based on these rates, what is the amount withheld from the employee's pay each year? Medicare Total 40. What is the total amount contributed by the employee and employer each year? 40. 41. The money is remitted to the government quarterly. What is the 41. quarterly deposit? 42. Assuming that the deposits were made to a savings plan at the end of 42. each quarter (instead of with the IRS), earning 7.5% compounded 43. quarterly, how much would the employee have in the savings plan at the end of a 40-year working career? 44. 43. An accomplished violinist lost her right hand in an accident. She 45. successfully sued the party responsible. You, as a member of the jury, 46. are trying to decide what amount the violinist should receive as a settlement. You have determined that the violinist was able to earn 47. $40,000 net income from concerts each month and would have been able to continue earning that amount for another 18 years. Assuming that money is worth 6.5% compounded monthly and that the $40,000 was received at the end of each month, what is a fair settlement? 44. You leased retail space 7 years ago for $17,500 per month, payable at the beginning of each month. Your lease is for 20 years and allows you to sublease the space. You have outgrown the space and sublease to Rest Easy Mattress for the remaining 13 years. Rest Easy will pay you $23,500 per month. What is the value of your position in the lease (referred to as a leasehold interest), assuming that money is worth 8.25% compounded monthly? 45. You win a $20 million lottery. When you go to collect your money, you find out the $20 million will be paid with 10 annual payments of $2 million, starting today. What is the real value of your prize, in today's dollars, assuming that you can earn 9% compounded annually? 46. Refer to Problem 45. If you invest the lottery payments in a savings plan, earning 9% compounded annually, how much will you end up with at the end of year 10? 47. Sofie Strauss, a 34-year-old nurse, decides to start a retirement plan. She figures that her income for the next 20 years will be sufficient to deposit $1,200 at the end of each quarter into her retirement plan earning 6.35% compounded quarterly. After 30 years she will let the money sit for another 12 years, without making additional deposits, until she is 66 years old. What amount will Sofie have when she turns 66? 48 Homework Assignments