Question

Your new job offers a savings plan that pays 0.25 percent in interest each month. You can't participate in the plan, however, until you have 9 years with the company. At that time you will start saving $200 a month for the next 22 years. How much will you have in this savings account in 31 years? Round your answer to two decimals SO Another perk of your new job is that, after 9 years with the company, you will also get an increase of $150 in your monthly salary Assume you would stay with the company for 22 more years after getting the salary increase, and that you discount at 0.25 percent each month. What is this salary increase worth to you today? Round your answer to two decimals. SO

Answer 1

Answer 1:

$ 74,655.96

Working:

Monthly saving from Year 10 to Year 31 (22 years) = $200

Monthly interest = 0.25%

Number of months = 22 * 12 = 264

Hence:

Balance in saving account in 31 years = FV (rate, nper, pmt, pv, type) = FV (0.25%, 264, -200, 0, 0) = $74,655.96

Balance in saving account in 31 years = $74,655.96

Answer 2:

s[ 22,117.49]

Working:

At the start of Year 10, salary increase per month = $150

Monthly interest = 0.25%

Number of months = 22 * 12 = 264

Present value of the increase at the start of Year 10 = PV (0.25%, 264, -150, 0, 0) = $28963.36

Present value of the increase today = 28963.36 / (1 + 0.25%) ^(9*12) = $22,117.48