Emily Dao,27, just received a promotion at work that increased her annual salary to $37,000

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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 retirement plan to which the employer matches dollar-for-dollar workers' contribution 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 sizeable bonus this year that she hopes will cover the down payment in three years.

A wedding also is also in her plans. Emily and her boyfriend, Paul have set a wedding date two years in the future, after he finished 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 fund is invested in 7% government bonds.

Question 1 

Justify Emily's participation in her employer's plan using the time value of money concepts by explaining how much an investment of $10,000 will grow to in 40 years if it earns 10%.

Question 2 

Calculate the amount of money that Emily needs to set aside from her bonus this year to cover the down payment on a new car, assuming she can earn 6% on her savings. What if she could earn 10% on her savings?

Question 3 

What will be the value of Emily's trust fund at age 60 assuming she takes possession of half of the money ($25,000 of the $50,000 trust fund) at age 30 for a house down payment, and leaves the other half of the money untouched where it is currently invested?

Question 4 

What is the relationship between discounting and compounding?

Question 5 

List at least two actions that Emily and Paul could take to accumulated more for their retirement