FIN 3331 Critical Thinking Assignment 
Name: Tung Son Nguyen
ID: 1418366
(Bold letters below are my answers)
Emily Smith just received a promotion at work that increased her annual salary to $42,000. She is eligible to participate in her employer’s 401(k) retirement plan to which the employer matches, dollar for dollar, workers’ contributions up to 5% of salary. However, Emily wants to buy a new $25,000 car in 3 years, and she wants to have enough money to make a $10,000 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 3 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 in 5 years. This might be possible because two years later, Emily will be eligible to access a trust fund left to her as an inheritance by her late grandfather. Her trust fund has$80,000 invested at an interest rate of 5%.
1. Justify Emily’s participation in her employer’s 401(k) plan using the time value of money concepts by calculating the actualannual return on her own contributions. She will contribute $1,000 per year to her 401(k) for 25 years and the employer will match dollar for dollar. Assume that her 401(k) earns 6% per year for 25 years and all contributions are made at the end of each year.
The formula that we applied here is FVAN = PMT * [(1+I)N -1]/I
In this case,
PMT = 1,000 (Emily’s contribution) + 1,000 (matching from employer) = 2,000 USD
I = 0.06
N = 25 The result is FVA25 = 109,729 USD
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 4% on her savings. What if she could earn 10% on her savings?
The formula we applied here is PMT = FVAN * I /[(1+I)N -1]
In the first case,
FVA3 = 10,000 USD
I = 0.04
N = 3
The result is PMT = 3,141 USD. However, since this
ID: 1418366
(Bold letters below are my answers)
Emily Smith just received a promotion at work that increased her annual salary to $42,000. She is eligible to participate in her employer’s 401(k) retirement plan to which the employer matches, dollar for dollar, workers’ contributions up to 5% of salary. However, Emily wants to buy a new $25,000 car in 3 years, and she wants to have enough money to make a $10,000 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 3 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 in 5 years. This might be possible because two years later, Emily will be eligible to access a trust fund left to her as an inheritance by her late grandfather. Her trust fund has$80,000 invested at an interest rate of 5%.
1. Justify Emily’s participation in her employer’s 401(k) plan using the time value of money concepts by calculating the actualannual return on her own contributions. She will contribute $1,000 per year to her 401(k) for 25 years and the employer will match dollar for dollar. Assume that her 401(k) earns 6% per year for 25 years and all contributions are made at the end of each year.
The formula that we applied here is FVAN = PMT * [(1+I)N -1]/I
In this case,
PMT = 1,000 (Emily’s contribution) + 1,000 (matching from employer) = 2,000 USD
I = 0.06
N = 25 The result is FVA25 = 109,729 USD
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 4% on her savings. What if she could earn 10% on her savings?
The formula we applied here is PMT = FVAN * I /[(1+I)N -1]
In the first case,
FVA3 = 10,000 USD
I = 0.04
N = 3
The result is PMT = 3,141 USD. However, since this