Question
Use the following information answer questions 1-3. Bart and Lisa Simpson both work at the Springfield DMV and have decided to start saving for retirement,
Use the following information answer questions 1-3.
Bart and Lisa Simpson both work at the Springfield DMV and have decided to start saving for retirement, which is 42 years away. They'll both receive a 8 percent annual return on their investment over the next 42 years. Lisa invests $5,000 per year at the end of each year only for the first 10 years of the 42-year period. Bart doesn't start saving for 10 years and then saves $5,000 per year at the end of each year for the remaining period of time
1. How much will Lisa have when she retires? Note: this question requires you to do two sets of calculations. Do not round until the end.
- How much will Bart have when he retires?
- How much would Bart need to save each year if he wants to "catch-up" to Lisa (how
- much will he need to save so that he has the same amount at retirement as Lisa)?
Use the following to answer questions 4 and 5.
Your Chihuahua Sophie got her head stuck in a peanut butter jar and required a visit to the emergency room at the CSU vet hospital. You know the bill is going to be expensive, but are still shocked when you find out that the total bill is $5,000. They are keeping her for observation overnight, so you head home to cry in your beer while trying to decide how to cover the cost given three different options:
- You can use VetCredit, a loan designed to help pet owners cover the cost of their vet bills, with guaranteed approval. The company requires monthly payments sufficient to pay the cost in full within 2 years. Your payments will be $230.72 with this option.
- Alternatively, you can use your credit card. You decide that you want to pay the bill off in 3 years, and have calculated that the minimum monthly payment will be $168.47.
- If you pay the bill in full, the vet hospital will give you a 10% cash discount. Your parents were going to put $5,000 into a Roth IRA, but have offered to loan you the money if you pay them $156 per month for 3 years.
4.What is the annual rate of return that would be required for your parents to be indifferent between investing in the Roth IRA and loaning you the money? Round to the nearest WHOLE percent. Enter as a number, not decimal, and do not include a percentage sign.
5.Based on your calculations, which option should you choose for paying the bill?
- V etCredit
- Your credit card
- The loan from your parents
- Any of these options are advisable given this information
6.You are up late one night television instead of studying for your finance final when an ad for a Bowflex machine comes on. The machine sells for $999 but Bowflex allows you to make monthly payments of "just $35.00 per month" for 5 years. What is the annual rate of interest that Bowflex charging? Answer with two decimal places.
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