Case 7: Better Late Than Never

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Case 7: Its better late than never!

1. What was Ryan’s starting salary? How much could he have contributed to the voluntary savings plan in his first year of employment?

RATE
NPR
FV
PV
YEARCONTRIBUTION TO SAVINGS PLAN

.05170,00066,6675th$7,333
.05270,00063,4924th$6,984
.05370,00060,4693rd$6,651
.05470,00057,8492nd$6,363
.05570,00054,8471st$6,033

Ryan’s first year salary at this company was $54,847 and he could have contributed $6,033 in his first year of employment. These were found by using the present value formula for all five years.

2. Had Ryan taken advantage of the company’s voluntary retirement plan up to the maximum, every year for the past five years, how much money would he currently have accumulated in his retirement account, assuming a nominal rate of return of 7%? How much more would his investment value have been worth had he opted for a higher risk alternative (i.e. 100% in common stocks), which was expected to yield an average compound rate of return of 12% (A.P.R.)?

YEAR
SALARIES
CONTRIBUTIONCONTRIBUTION TO SAVINGS PLAN

5th66,667x11% =$6,033
4th63,492x11%=$6,363
3rd60,469x11%=$6,651
2nd57,849x11%=$6,984
1st54,847x11%=$7,333
Total$33,364

FV Formula
Rate: .07 NPER: 5 PMT: 0 PV: -33364
Current accumulated in retirement account= $46,794
$46,794- $33,364= $13,430

FV Formula
Rate: .12 NPER: 5 PMT: 0 PV: -33364
Net worth of average retirement account= $58,798

If Ryan had take advantage of the retirement plan, he would currently have accumulated $13,430 assuming at rate of return of 7%. Assuming a rate of 12%, he would have been worth $58,798.

4. How much would Ryan have to save each month, starting from the end of the next month, in order to accumulate enough money for his wedding expenses, assuming that his investment fund is expected to yield a rate of return of 7% per year?

Wedding Expense
$15,000 x 1.04= $15,600

PMT...
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