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)

Answer 1

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