Emily Dao, 27, just received a promotion at work that increased her annual salary to $37,000. She is eligible to participate in her employer’s 401(k) retirement plan in which the employer matches, dollar for dollar, workers’ contributions up to 5 percent of salary. However, Emily wants to buy a new $25,000 car in three years, and she wants to have enough money to make a $7,000 down payment on the car and finance the balance. Fortunately, she expects a sizable bonus this year that she hopes will cover that down payment in three years. A wedding is also in her plans. Emily and her boyfriend, Paul, have set a wedding date two years in the future, after he finishes medical school. In addition, Emily and Paul want to buy a home of their own as soon as possible. This might be possible because at age 30, Emily will be eligible to access a $50,000 trust fund left to her as an inheritance by her late grandfather. Her trust fund is invested in 7 percent government bonds. What is the relationship between discounting and compounding? List at least two actions that Emily and Paul could take to accumulate more for their retirement (think about interest rate or number of year)
Emily Dao, 27, just received a promotion at work that increased her annual salary to $37,000. She is eligible to participate in her employer’s 401(k) retirement plan in which the employer matches, dollar for dollar, workers’ contributions up to 5 percent of salary. However, Emily wants to buy a new $25,000 car in three years, and she wants to have enough money to make a $7,000 down payment on the car and finance the balance. Fortunately, she expects a sizable bonus this year that she hopes will cover that down payment in three years.
A wedding is also in her plans. Emily and her boyfriend, Paul, have set a wedding date two years in the future, after he finishes medical school. In addition, Emily and Paul want to buy a home of their own as soon as possible. This might be possible because at age 30, Emily will be eligible to access a $50,000 trust fund left to her as an inheritance by her late grandfather. Her trust fund is invested in 7 percent government bonds.
- What is the relationship between discounting and compounding?
- List at least two actions that Emily and Paul could take to accumulate more for their retirement (think about interest rate or number of year)
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