Elliot makes $250,000 a year and pays 30% taxes on $150,000 and 35% on his remai

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

Income before tax = $250000

Tax = [ 150000 x 0.30 ] + [ 100000 x 0.35 ]

= $80000

Income after tax and expenses = 250000 - 80000 - 110000 = $60000

Thus the maximum amount that can be invested every day = 60000 / 365 = $164.38

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