Elliot makes $250,000 a year and pays 30% taxes on $150,000 and 35% on his remai
ID: 2483472 • Letter: E
Question
Elliot makes $250,000 a year and pays 30% taxes on $150,000 and 35% on his remaining salary. His expenses are $110,000 (per year). He wants to invest a fixed amount EVERY day into an investment fund for 5 years and he hopes to get a 12% return. (20 PTS)
a) What is the maximum amount he can invest every day? (5 PTS) (Find the annual investment amount and divide by 365).
b) What will be the worth of his portfolio after 5 years? (5 PTS)
c) After 5 years, Kassidy’s income increases to $300,000. He wants to reinvest for another 5 year, but this time, his return will be 10% and his expenses have increased by 15%. What will be the worth of his portfolio after 5 years (total of 10 years)? (5 PTS)
d) What will the Present Value of his portfolio, assuming a 6% discount rate and NPER is 10 years?
Explanation / Answer
Total earning = 250000
Total Expenses
Tax 30% on 150000 + 35% 0n ( 250000 - 150000)
= 45000 + 35000 = 80000
Others = 110000
Balance = 250000 - 80000 - 110000 = 60000
He can invest everyday = 60000/ 365 = $164 approx
In five years his portfolio will be-
60000 FVIFA ( 12%,5) = 381170.84
c) The amount invested after the change of income and expeses is
Income = 300000
Tax = 30% on 150000 + 35% on (300000 - 150000) = 97500
Other expenses = 110000 * 115% = 126500
Balance = 300000 - 97500 - 126500 = 76000
Amont after 5 years = 76000 FVIFA ( 10%,5) = 463987.60
So, value of investment = 463987.60 + 381170.84 FVIF (10%,5)
= 1077867.05
D) The present value of his portfolio
= 1077867.05 * PVIF( 6%,10) = 601875.33
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