Emily Dao, 27, just received a promotion at work that increased A wedding is als

Question

Emily Dao, 27, just received a promotion at work that increased A wedding is also in her plans. Emily and her boyfriend, her annual salary to $37,000. She is eligible to participate in Paul, have set a wedding date two years in the future, after he her employer's 401(k) retirement plan in which the employer finishes medical school. In addition, Emily and Paul want to buy matches, dollar for dollar, workers' contributions up to 5 percent a home of their own as soon as possible. This might be possible of salary. However, Emily wants to buy a new $25,000 car in because at age 30, Emily will be eligible to access a $50,000 three years, and she wants to have enough money to make a trust fund left to her as an inheritance by her late grandfather. $7,000 down payment on the car and finance the balance. Fortu- Her trust fund is invested in 7 percent government bonds. nately, she expects a sizable bonus this year that she hopes will cover that down payment in three years.

Explanation / Answer

Discounting is use to determine present value of future cashf low while compounding is use to compute future value of cash flow at specified interest rate. in discounting we dividend discounting factor of each year with future cashf low and in compounding we multiply compounding factor with cash flow. Both method use time value of money concept.

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