James's New Year’s resolution (Graded A+) - use as a guide only - 27594

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1.       James's New Year’s resolution is to start a retirement fund.  He has opened an account with a local broker by depositing $5000 in an investment fund.  In the future he plans to invest $2,000 annually into the fund.

a.       If the index funds averages a return of 9% annually (EAR), what will he have available for retirement after 30 years?

b.      If James wants a retirement fund of $500,000 when he retires, how many years will he have to work?

2.       Sandra is evaluating her retirement plan.  Suppose she has $500,000 when she retires in an account that earns at an effective annual rate of 9%.

a.       If Sandra withdraws $75,000 annually, how long will her funds last?

b.      To make the funds last 25 years, how much can Sandra withdraw annually?

c.       Sandra is considering a two phase withdrawal where she withdraws $60,000 annually for 10 years, and then $35,000 thereafter (when social security starts).   How long will her funds last assuming that the 9% rate of return (EAR) is accurate for both phases of the retirement plan.

3.       Penny gets paid every other week (bi-weekly) and her husband Patrick gets paid monthly.  Penny is going to make a $150 deposit from her paycheck every two weeks into a new retirement fund, and Patrick is going to deposit $300 from his paycheck monthly into a new retirement fund.  Both accounts earn an effective annual rate of 6%.  Penny's account compounds bi-weekly and Patrick's fund compounds monthly that matches their deposits.

a.       What together can Penny and Patrick expect to receive from their deposits in 30 years?

b.      How much would Patrick have to deposit each month for the combined savings to achieve $1 million in thirty years?  (Penny would continue as above.)

4.       Sam is going to buy a new car costing $24,000.  Wealthy Uncle Job offered a choice of three loans as described below.   The annual percentage rate with monthly compounding for all three alternative loans would be 3.25% and the loans would be for 4 years.  Determine the payment amount that Sam would have to make for each loan alternative?

a.       Loan 1 would be for the total cost of the car and Sam would pay equal monthly payments to Uncle Job.

b.      Loan 2 would be for the total cost of the car with Sam making a $3,000 payment at the end of the loan and equal annual payments to Uncle Job for the remainder.

c.       Loan 3 would have Sam using $3000 of his personal savings upfront to reduce the loan size and Sam would make equal monthly payments to Uncle Job. 

5.       Pat Davis has earned a promotion that will pay an annual bonus of $10,000 at the end of the first year and increase by 12% each year thereafter.  He is going to deposit his annual bonus into a fund that has an annual percentage rate of 5% compounded monthly that presently has $30,000 in it. He plans to retire in 15 years.  How much will be in the fund at the time he retires?

6.       Jimmy took out a 30 year fixed home mortgage for $400,000 five years ago with a rate of 5.5% APR with monthly compounding.  He can get a new loan at 4% APR compounded monthly if he takes $25,000 out of his investment fund  that presently earn 8% APR compounded monthly.  The $25,000 is needed to reduce the size of the new loan since the value of the home has diminished due to the Great Recession, and also to pay a $500 processing fee.  If this new mortgage is a 25 year fixed rate at 4% APR compounded monthly, determine how much Jimmy would save monthly, if any.

7.       Jamie is applying for a business loan of $500,000 for her company to expand her Internet sales.   The bank has asked for an Income statement and Cash Flow statement for the upcoming three years (called "pro forma" statements).  Below is the data that she has put together based on the past statements and her plans for the future. 

a.       Prepare an income statements  with three columns of data for the years 2013, 2104,  and 2015 that includes totals for Gross margin, SG&A, EBIT, Pre-tax Income and Net Income.

b.      Prepare a cash flow statement with three columns of data for the years 2013, 2014 and 2015 that includes rows for the cash on hand at the beginning of each year, and at the end of each year.


ØCash on Hand EOY 2012                 $100,000.00

ØLoan Received in 2013                    $500,000.00





Asset purchases








Office Equipment rental




Hourly wages




Loan Principal Paid




Interest Paid




Marketing and Web site




Miscellaneous expenses




Permanent Staff Salaries












Tax Rate





low?? g?? ??? emand (AD) and short-run aggregate supply (SRAS) schedules. Decision-makers have previously made decisions anticipating that the price level during the current period will be P105.



a.       Indicate the quantity of GDP that will be produced during the period.

b.      Is it a long-run equilibrium level of GDP? Why or why not?

c.       How will the unemployment rate during the current period compare with the natural rate of             unemployment?

d.      Will the current rate of GDP be sustainable into the future? Why or why not?




Price Level

SRAS 105





















This assignment is due by 11:59 p.m. (ET) on Monday of Module/Week 2.



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