Jinhee Ju, 27, just received a promotion at work that increased her annual salar

Question

Jinhee Ju, 27, just received a promotion at work that increased her annual salary to $37,000. She is eligible to participate in her employers 401(k) plan to which the employer matches dollar-for-dollar workers contributions up to 5 percent of salary. However, Jinhee wants to buy a new $25,000 car in three years and she wants to save enough money to make a $7,000 down payment on the car and finance the balance.

Also in her plans is a wedding. Jinhee and her boyfriend, Paul, have set a wedding date two years in the future, after he finishes medical school. Paul will have $100,000 of student loans to repay after graduation. But both Jinhee and Paul want to buy a home of their own as soon as possible. This might be possible because at age 30, Jinhee will be eligible to access a $50,000 trust fund left to her as an inheritance by her late grandfather. Her trust fund is invested in 7 percent government bonds.

question:

Calculate the amount that Jinhee needs to save each year for the down payment on a new car, assuming she can earn 6 percent on her savings. Calculate how much she will need to save on a monthly basis assuming monthly conpounding. For each scenario, how much of her down payment will come from interest earned?

Explanation / Answer

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