Elliot makes $250,000 a year and pays 30% taxes on $150,000 and 35% on his remai
ID: 2536724 • 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? (5 PTS)
Explanation / Answer
a -What is the maximum amount he can invest every day? (5 PTS) (Find the annual investment amount and divide by 365).
Answer: $164.38
Working:
Salary
$250,000
Tax 1(30%*150,000)
$45,000
Tax 2 (35%*100,000)
$35,000
Total taxes
$80,000
Expenditure
$110,000
Available amount for investment = 250,000 - 80,000 - 110,000 = 60,000
Per day investment = 60,000 / 365 = $164.38
?
b-What will be the worth of his portfolio after 5 years? (5 PTS)
Answer: $410,969.57
Working:
Per day investment
$164
Rate
12%
Per day rate (12% /365)
0.033%
Investment (5yr * 365)
$1,825
Portfolio value after 5 years
$410,969.57
?
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)
Answer: $492,942
Working:
Salary
$300,000
Tax 1(30%*150,000)
$45,000
Tax 2 (35%*150,000)
$52,500
Total taxes
$97,500
Expenditure (110,000 * (1+0.15))
$126,500
Available amount for investment I (300,000 - 97,500 - 126,500)
$76,000
Per day investment (76,000/365)
$208.22
Rate
10%
Rate per day (10%/365)
0.027%
per day rate
Value of portfolio after 5 years FV2
$492,942
?
?
d-What will the Present Value of his portfolio, assuming a 6% discount rate and NPER is 10 years? (5 PTS)
Answer: $582,356.81
Working:
Cash flow
Amount
Year
Rate of discount
PV
FV1
$410,969.57
5
6%
307,100.37
FV2
$492,942.36
10
6%
275,256.44
TOTAL
582,356.81
Salary
$250,000
Tax 1(30%*150,000)
$45,000
Tax 2 (35%*100,000)
$35,000
Total taxes
$80,000
Expenditure
$110,000
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