Your new job offers a savings plan that pays 0.50 percent in interest each month
ID: 2617152 • Letter: Y
Question
Your new job offers a savings plan that pays 0.50 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 $550 a month for the next 26 years. A.) How much will you have in this savings account in 35 years? Round your answer to two decimals. 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 26 more years after getting the salary increase, and that you discount at 0.50 percent each month. B.) What is this salary increase worth to you today? Round your answer to two decimals.
Explanation / Answer
a.Here we calculaet the future value of the investment by using excel formula =FV(rate,nper,pmt) where
rate= 0.5% = 0.005
nper = 26 years = 26*12 = 312 months
pmt = 550
The amount you will have after 35 years = FV(0.005,312,550) = 411,439.53
The amount you will have after 35 years = $411,439.53
b. Worth of salary increase today
Here, we have been given the FV and we have to clculate the Present value (PV)
FV = 150
nper = 9 years = 9*12 =108
rate = 0.005
Value of the salary increase today = PV(rate,nper,pmt,fv) in excel = PV(0.005,108,0,150) = 87.53
Value of the salary increase today = $87.53
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