Elliot makes $200,000 a year and pays 28% taxes on $150,000 and 25% on his remai

Question

Elliot makes $200,000 a year and pays 28% taxes on $150,000 and 25% on his remaining salary. His expenses are $140,000 (per year). He wants to invest a fixed amount EVERY day into an investment fund for 5 years and he hopes to get a 10% return.

What is the maximum amount he can invest every day? (5 PTS) (Find the annual investment amount and divide by 365). What will be the worth of his portfolio after 5 years?

After 5 years, Kassidy’s income increases to $250,000. He wants to reinvest for another 5 year, but this time, his return will be 8% and his expenses have increased by 15%. What will be the worth of his portfolio after 5 years (total of 10 years)?

What will the Present Value of his portfolio, assuming a 9% discount rate and NPER is 10 years?

Explanation / Answer

Maximum amount that can be invested by Elliot annually = (150000*(1-0.28) + 50000*(1-0.25)) - 140000 = 5500

So, Amount that can be Invested everyday = 5500/365 = 15.07

Worth of portfolio after 5 years = 15.07*((1+(0.1/365))(5*365) - 1)/(0.1/365) = 35677.03

Annual savings after increase in income = (200000*(1-0.28)+50000*(1-0.25) - 140000*1.15) = 20500

Investment that can be made everyday = 20500/365 = 56.16

Worth of portfolio = 56.16*((1+(0.08/365))(5*365) - 1)/(0.08/365) + 35677.03*(1+0.08)5

= 178424.75

Present value of portfolio = 178424.75/(1.09^10) = 75368.54

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