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Solution to Case 101

Time Value of Money

Wake Up and Smell the Coffee!


1. Based on the information provided in Table 1, if the Hall’s continue making
minimum payments on their outstanding debts, how much money will they have left
over for all other expenses?
Balanc
Terme Rate
Car Payment ($221.58) PMT 24 5000 5.99%
College Loan Payment ($527.80) PMT 24 12000 5.25%
Credit Card Payment (3% of Balance) (300.00) 3% 10,000 15.99%
Rent (1200.00)
Total Monthly expenses ($2,249.38)

Marty's Gross Annual Salary 50,000


Laura's Gross Annual Salary 25,000
Income tax rate 28%

Monthly take home pay (Marty) 3000 AnSal*(1 - T)/12


Monthly take home pay (Laura) 1500 AnSal*(1 - T)/12
After-tax monthly take home pay 4500

Remaining balance for all other expenses $2,250.62 Monthly

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2. How much money will Laura and Marty have to deposit each month (beginning one
month after she is born and ending when she turns 18) in order to have enough
saved up for their child’s education. Assume that the yield on investments is 8%
per year, college expenses increase at the rate of 4% per year, and that their child
will enter college when he or she turns 18 and will complete the degree in 4 years.

Annual Yield 8%
Number of years until child attends college 18
Annual College Expenses (currently) $20,000
Inflation rate 4%
Years in college 4
College expense (Freshman Year) $ 40,516.33
PV = -20,000, I/Y= 4%, N = 18, PMT = 0, CPT FV1 =
College expense (Sophomore Year) $ 42,136.98
PV = -20,000, I/Y= 4%, N = 19, PMT = 0, CPT FV2 =
College expense (Junior Year) $ 43,822.46
PV = -20,000, I/Y= 4%, N = 20, PMT = 0, CPT FV3 =
College expense (Senior Year) $ 45,575.36
PV = -20,000, I/Y= 4%, N = 21, PMT = 0, CPT FV4 =
$172,051.13
Total Savings Accumulation Required for College Expenses once child
turns 18 $153,281.95
PV of FV1 (n = 0) to PV of FV4 (n = 3) at I/Y = 8%
Monthly deposits required to save up for 4 year's of child's college
education at age 18 ($319.28)
FV = 153,281.95, I/Y= 8/12, N = 216, PV = 0, CPT PMT =

3. How much money will the Hall’s have to set aside each month so as to have enough
saved up for a down payment on the $140,000 house within 12 months? Assume
that the closing costs amount to 2% of the loan balance and than the down payment
is 10% of the price. Note: Annual rate of return on investment is 12%.

2
Purchase Price of House (assumed to be the same after 12 months)……………………………......140,000
10% Down Payment …………..…………………………………………………………………......14,000
Loan Amount ………………………………………………………………………..……………...126,000
Closing Costs ………………………………………………………………………………………….2,520
Total Money needed to be saved for Down Payment and Closing Costs………………………….…16,520
Annual Rate of return on investments………………………………………………………………..…..8%
Number of months until purchase of house………………………………………………………..……..12
Monthly deposits required to accumulate total closing costs……………………………..……..($1,326.92)
Marty's Gross Annual Salary…………………………………………………………………...…….50,000
Laura's Gross Annual Salary……………………………………………………………………..…..25,000
Income tax rate……………………………………………………………………………………..…..28%
Monthly take home pay (Marty)……………………………………………………………………….3,000
Monthly take home pay (Laura)………………………………………………………………………..1500

Note: FV = 16,520, I/Y= 8/12, N = 12, PV = 0, CPT PMT = -1,326.92

4 If the interest rate on a 30-year mortgage is at 5% per year when the Hall’s purchase
their house, how much will their mortgage (monthly) payment be? Ignore
insurance and taxes, as well as inflation.

Mortgage Amount………………… 126,000


Mortgage Rate…………………….. 5%
Mortgage Term (years)…………….. 30
Monthly Payment…………………. ($676.40)
PV = -126,000, I/Y= 5/12, N = 360, FV = 0, CPT PMT =

5. Construct an amortization schedule for the 5%, 30-year mortgage.

3
Beginning Reduction of
Month Principle Balance Payment Interest Principle Outstanding Balance
1 126,000 ($676.40) $ 525.00 ($151.40) $125,848.60
2 $125,848.60 ($676.40) $ 524.37 ($152.03) $125,696.58
3 $125,696.58 ($676.40) $ 523.74 ($152.66) $125,543.92
4 $125,543.92 ($676.40) $ 523.10 ($153.30) $125,390.62
5 $125,390.62 ($676.40) $ 522.46 ($153.93) $125,236.69
6 $125,236.69 ($676.40) $ 521.82 ($154.58) $125,082.11
7 $125,082.11 ($676.40) $ 521.18 ($155.22) $124,926.89
8 $124,926.89 ($676.40) $ 520.53 ($155.87) $124,771.03
9 $124,771.03 ($676.40) $ 519.88 ($156.52) $124,614.51
10 $124,614.51 ($676.40) $ 519.23 ($157.17) $124,457.34
11 $124,457.34 ($676.40) $ 518.57 ($157.82) $124,299.52
12 $124,299.52 ($676.40) $ 517.91 ($158.48) $124,141.04
13 $124,141.04 ($676.40) $ 517.25 ($159.14) $123,981.90
14 $123,981.90 ($676.40) $ 516.59 ($159.80) $123,822.09
15 $123,822.09 ($676.40) $ 515.93 ($160.47) $123,661.62
16 $123,661.62 ($676.40) $ 515.26 ($161.14) $123,500.49
17 $123,500.49 ($676.40) $ 514.59 ($161.81) $123,338.68
18 $123,338.68 ($676.40) $ 513.91 ($162.48) $123,176.19
19 $123,176.19 ($676.40) $ 513.23 ($163.16) $123,013.03
20 $123,013.03 ($676.40) $ 512.55 ($163.84) $122,849.19
21 $122,849.19 ($676.40) $ 511.87 ($164.52) $122,684.67
22 $122,684.67 ($676.40) $ 511.19 ($165.21) $122,519.46
23 $122,519.46 ($676.40) $ 510.50 ($165.90) $122,353.56
24 $122,353.56 ($676.40) $ 509.81 ($166.59) $122,186.97
25 $122,186.97 ($676.40) $ 509.11 ($167.28) $122,019.69
26 $122,019.69 ($676.40) $ 508.42 ($167.98) $121,851.71
27 $121,851.71 ($676.40) $ 507.72 ($168.68) $121,683.03
28 $121,683.03 ($676.40) $ 507.01 ($169.38) $121,513.65
29 $121,513.65 ($676.40) $ 506.31 ($170.09) $121,343.56
30 $121,343.56 ($676.40) $ 505.60 ($170.80) $121,172.76
31 $121,172.76 ($676.40) $ 504.89 ($171.51) $121,001.25
32 $121,001.25 ($676.40) $ 504.17 ($172.22) $120,829.03
33 $120,829.03 ($676.40) $ 503.45 ($172.94) $120,656.09
34 $120,656.09 ($676.40) $ 502.73 ($173.66) $120,482.43
35 $120,482.43 ($676.40) $ 502.01 ($174.39) $120,308.04
36 $120,308.04 ($676.40) $ 501.28 ($175.11) $120,132.93
37 $120,132.93 ($676.40) $ 500.55 ($175.84) $119,957.09
38 $119,957.09 ($676.40) $ 499.82 ($176.57) $119,780.51
39 $119,780.51 ($676.40) $ 499.09 ($177.31) $119,603.20
40 $119,603.20 ($676.40) $ 498.35 ($178.05) $119,425.16
41 $119,425.16 ($676.40) $ 497.60 ($178.79) $119,246.37
42 $119,246.37 ($676.40) $ 496.86 ($179.54) $119,066.83
43 $119,066.83 ($676.40) $ 496.11 ($180.28) $118,886.55
44 $118,886.55 ($676.40) $ 495.36 ($181.03) $118,705.51
45 $118,705.51 ($676.40) $ 494.61 ($181.79) $118,523.72
46 $118,523.72 ($676.40) $ 493.85 ($182.55) $118,341.18
47 $118,341.18 ($676.40) $ 493.09 ($183.31) $118,157.87
48 $118,157.87 ($676.40) $ 492.32 ($184.07) $117,973.80
49 $117,973.80 ($676.40) $ 491.56 ($184.84) $117,788.96
50 $117,788.96 ($676.40) $ 490.79 ($185.61) $117,603.35
51 $117,603.35 ($676.40) $ 490.01 ($186.38) $117,416.97
52 $117,416.97 ($676.40) $ 489.24 ($187.16) $117,229.81
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53 $117,229.81 ($676.40) $ 488.46 ($187.94) $117,041.88
54 $117,041.88 ($676.40) $ 487.67 ($188.72) $116,853.16
55 $116,853.16 ($676.40) $ 486.89 ($189.51) $116,663.65
56 $116,663.65 ($676.40) $ 486.10 ($190.30) $116,473.35
57 $116,473.35 ($676.40) $ 485.31 ($191.09) $116,282.26
58 $116,282.26 ($676.40) $ 484.51 ($191.89) $116,090.38
59 $116,090.38 ($676.40) $ 483.71 ($192.69) $115,897.69
60 $115,897.69 ($676.40) $ 482.91 ($193.49) $115,704.20
61 $115,704.20 ($676.40) $ 482.10 ($194.29) $115,509.91
62 $115,509.91 ($676.40) $ 481.29 ($195.10) $115,314.80
63 $115,314.80 ($676.40) $ 480.48 ($195.92) $115,118.89
64 $115,118.89 ($676.40) $ 479.66 ($196.73) $114,922.15
65 $114,922.15 ($676.40) $ 478.84 ($197.55) $114,724.60
66 $114,724.60 ($676.40) $ 478.02 ($198.38) $114,526.22
67 $114,526.22 ($676.40) $ 477.19 ($199.20) $114,327.02
68 $114,327.02 ($676.40) $ 476.36 ($200.03) $114,126.99
69 $114,126.99 ($676.40) $ 475.53 ($200.87) $113,926.12
70 $113,926.12 ($676.40) $ 474.69 ($201.70) $113,724.42
71 $113,724.42 ($676.40) $ 473.85 ($202.54) $113,521.88
72 $113,521.88 ($676.40) $ 473.01 ($203.39) $113,318.49
73 $113,318.49 ($676.40) $ 472.16 ($204.23) $113,114.25
74 $113,114.25 ($676.40) $ 471.31 ($205.09) $112,909.17
75 $112,909.17 ($676.40) $ 470.45 ($205.94) $112,703.23
76 $112,703.23 ($676.40) $ 469.60 ($206.80) $112,496.43
77 $112,496.43 ($676.40) $ 468.74 ($207.66) $112,288.77
78 $112,288.77 ($676.40) $ 467.87 ($208.53) $112,080.24
79 $112,080.24 ($676.40) $ 467.00 ($209.39) $111,870.85
80 $111,870.85 ($676.40) $ 466.13 ($210.27) $111,660.58
81 $111,660.58 ($676.40) $ 465.25 ($211.14) $111,449.44
82 $111,449.44 ($676.40) $ 464.37 ($212.02) $111,237.42
83 $111,237.42 ($676.40) $ 463.49 ($212.91) $111,024.51
84 $111,024.51 ($676.40) $ 462.60 ($213.79) $110,810.72
85 $110,810.72 ($676.40) $ 461.71 ($214.68) $110,596.04
86 $110,596.04 ($676.40) $ 460.82 ($215.58) $110,380.46
87 $110,380.46 ($676.40) $ 459.92 ($216.48) $110,163.98
88 $110,163.98 ($676.40) $ 459.02 ($217.38) $109,946.60
89 $109,946.60 ($676.40) $ 458.11 ($218.28) $109,728.32
90 $109,728.32 ($676.40) $ 457.20 ($219.19) $109,509.12
91 $109,509.12 ($676.40) $ 456.29 ($220.11) $109,289.02
92 $109,289.02 ($676.40) $ 455.37 ($221.02) $109,067.99
93 $109,067.99 ($676.40) $ 454.45 ($221.95) $108,846.05
94 $108,846.05 ($676.40) $ 453.53 ($222.87) $108,623.18
95 $108,623.18 ($676.40) $ 452.60 ($223.80) $108,399.38
96 $108,399.38 ($676.40) $ 451.66 ($224.73) $108,174.65
97 $108,174.65 ($676.40) $ 450.73 ($225.67) $107,948.98
98 $107,948.98 ($676.40) $ 449.79 ($226.61) $107,722.37
99 $107,722.37 ($676.40) $ 448.84 ($227.55) $107,494.82
100 $107,494.82 ($676.40) $ 447.90 ($228.50) $107,266.32
101 $107,266.32 ($676.40) $ 446.94 ($229.45) $107,036.87
102 $107,036.87 ($676.40) $ 445.99 ($230.41) $106,806.46
103 $106,806.46 ($676.40) $ 445.03 ($231.37) $106,575.09
104 $106,575.09 ($676.40) $ 444.06 ($232.33) $106,342.76
105 $106,342.76 ($676.40) $ 443.09 ($233.30) $106,109.46
106 $106,109.46 ($676.40) $ 442.12 ($234.27) $105,875.18
107 $105,875.18 ($676.40) $ 441.15 ($235.25) $105,639.94
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108 $105,639.94 ($676.40) $ 440.17 ($236.23) $105,403.71
109 $105,403.71 ($676.40) $ 439.18 ($237.21) $105,166.49
110 $105,166.49 ($676.40) $ 438.19 ($238.20) $104,928.29
111 $104,928.29 ($676.40) $ 437.20 ($239.19) $104,689.10
112 $104,689.10 ($676.40) $ 436.20 ($240.19) $104,448.91
113 $104,448.91 ($676.40) $ 435.20 ($241.19) $104,207.72
114 $104,207.72 ($676.40) $ 434.20 ($242.20) $103,965.52
115 $103,965.52 ($676.40) $ 433.19 ($243.21) $103,722.31
116 $103,722.31 ($676.40) $ 432.18 ($244.22) $103,478.10
117 $103,478.10 ($676.40) $ 431.16 ($245.24) $103,232.86
118 $103,232.86 ($676.40) $ 430.14 ($246.26) $102,986.60
119 $102,986.60 ($676.40) $ 429.11 ($247.28) $102,739.32
120 $102,739.32 ($676.40) $ 428.08 ($248.31) $102,491.00
121 $102,491.00 ($676.40) $ 427.05 ($249.35) $102,241.65
122 $102,241.65 ($676.40) $ 426.01 ($250.39) $101,991.26
123 $101,991.26 ($676.40) $ 424.96 ($251.43) $101,739.83
124 $101,739.83 ($676.40) $ 423.92 ($252.48) $101,487.35
125 $101,487.35 ($676.40) $ 422.86 ($253.53) $101,233.82
126 $101,233.82 ($676.40) $ 421.81 ($254.59) $100,979.23
127 $100,979.23 ($676.40) $ 420.75 ($255.65) $100,723.59
128 $100,723.59 ($676.40) $ 419.68 ($256.71) $100,466.87
129 $100,466.87 ($676.40) $ 418.61 ($257.78) $100,209.09
130 $100,209.09 ($676.40) $ 417.54 ($258.86) $99,950.23
131 $99,950.23 ($676.40) $ 416.46 ($259.94) $99,690.29
132 $99,690.29 ($676.40) $ 415.38 ($261.02) $99,429.28
133 $99,429.28 ($676.40) $ 414.29 ($262.11) $99,167.17
134 $99,167.17 ($676.40) $ 413.20 ($263.20) $98,903.97
135 $98,903.97 ($676.40) $ 412.10 ($264.30) $98,639.68
136 $98,639.68 ($676.40) $ 411.00 ($265.40) $98,374.28
137 $98,374.28 ($676.40) $ 409.89 ($266.50) $98,107.78
138 $98,107.78 ($676.40) $ 408.78 ($267.61) $97,840.16
139 $97,840.16 ($676.40) $ 407.67 ($268.73) $97,571.44
140 $97,571.44 ($676.40) $ 406.55 ($269.85) $97,301.59
141 $97,301.59 ($676.40) $ 405.42 ($270.97) $97,030.62
142 $97,030.62 ($676.40) $ 404.29 ($272.10) $96,758.51
143 $96,758.51 ($676.40) $ 403.16 ($273.23) $96,485.28
144 $96,485.28 ($676.40) $ 402.02 ($274.37) $96,210.91
145 $96,210.91 ($676.40) $ 400.88 ($275.52) $95,935.39
146 $95,935.39 ($676.40) $ 399.73 ($276.66) $95,658.73
147 $95,658.73 ($676.40) $ 398.58 ($277.82) $95,380.91
148 $95,380.91 ($676.40) $ 397.42 ($278.97) $95,101.93
149 $95,101.93 ($676.40) $ 396.26 ($280.14) $94,821.80
150 $94,821.80 ($676.40) $ 395.09 ($281.30) $94,540.49
151 $94,540.49 ($676.40) $ 393.92 ($282.48) $94,258.02
152 $94,258.02 ($676.40) $ 392.74 ($283.65) $93,974.36
153 $93,974.36 ($676.40) $ 391.56 ($284.84) $93,689.53
154 $93,689.53 ($676.40) $ 390.37 ($286.02) $93,403.50
155 $93,403.50 ($676.40) $ 389.18 ($287.21) $93,116.29
156 $93,116.29 ($676.40) $ 387.98 ($288.41) $92,827.88
157 $92,827.88 ($676.40) $ 386.78 ($289.61) $92,538.27
158 $92,538.27 ($676.40) $ 385.58 ($290.82) $92,247.45
159 $92,247.45 ($676.40) $ 384.36 ($292.03) $91,955.42
160 $91,955.42 ($676.40) $ 383.15 ($293.25) $91,662.17
161 $91,662.17 ($676.40) $ 381.93 ($294.47) $91,367.70
162 $91,367.70 ($676.40) $ 380.70 ($295.70) $91,072.00
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163 $91,072.00 ($676.40) $ 379.47 ($296.93) $90,775.08
164 $90,775.08 ($676.40) $ 378.23 ($298.17) $90,476.91
165 $90,476.91 ($676.40) $ 376.99 ($299.41) $90,177.50
166 $90,177.50 ($676.40) $ 375.74 ($300.66) $89,876.85
167 $89,876.85 ($676.40) $ 374.49 ($301.91) $89,574.94
168 $89,574.94 ($676.40) $ 373.23 ($303.17) $89,271.77
169 $89,271.77 ($676.40) $ 371.97 ($304.43) $88,967.34
170 $88,967.34 ($676.40) $ 370.70 ($305.70) $88,661.64
171 $88,661.64 ($676.40) $ 369.42 ($306.97) $88,354.67
172 $88,354.67 ($676.40) $ 368.14 ($308.25) $88,046.42
173 $88,046.42 ($676.40) $ 366.86 ($309.54) $87,736.89
174 $87,736.89 ($676.40) $ 365.57 ($310.82) $87,426.06
175 $87,426.06 ($676.40) $ 364.28 ($312.12) $87,113.94
176 $87,113.94 ($676.40) $ 362.97 ($313.42) $86,800.52
177 $86,800.52 ($676.40) $ 361.67 ($314.73) $86,485.79
178 $86,485.79 ($676.40) $ 360.36 ($316.04) $86,169.76
179 $86,169.76 ($676.40) $ 359.04 ($317.35) $85,852.40
180 $85,852.40 ($676.40) $ 357.72 ($318.68) $85,533.72
181 $85,533.72 ($676.40) $ 356.39 ($320.00) $85,213.72
182 $85,213.72 ($676.40) $ 355.06 ($321.34) $84,892.38
183 $84,892.38 ($676.40) $ 353.72 ($322.68) $84,569.71
184 $84,569.71 ($676.40) $ 352.37 ($324.02) $84,245.68
185 $84,245.68 ($676.40) $ 351.02 ($325.37) $83,920.31
186 $83,920.31 ($676.40) $ 349.67 ($326.73) $83,593.58
187 $83,593.58 ($676.40) $ 348.31 ($328.09) $83,265.50
188 $83,265.50 ($676.40) $ 346.94 ($329.46) $82,936.04
189 $82,936.04 ($676.40) $ 345.57 ($330.83) $82,605.21
190 $82,605.21 ($676.40) $ 344.19 ($332.21) $82,273.01
191 $82,273.01 ($676.40) $ 342.80 ($333.59) $81,939.41
192 $81,939.41 ($676.40) $ 341.41 ($334.98) $81,604.43
193 $81,604.43 ($676.40) $ 340.02 ($336.38) $81,268.06
194 $81,268.06 ($676.40) $ 338.62 ($337.78) $80,930.28
195 $80,930.28 ($676.40) $ 337.21 ($339.19) $80,591.09
196 $80,591.09 ($676.40) $ 335.80 ($340.60) $80,250.49
197 $80,250.49 ($676.40) $ 334.38 ($342.02) $79,908.48
198 $79,908.48 ($676.40) $ 332.95 ($343.44) $79,565.03
199 $79,565.03 ($676.40) $ 331.52 ($344.87) $79,220.16
200 $79,220.16 ($676.40) $ 330.08 ($346.31) $78,873.85
201 $78,873.85 ($676.40) $ 328.64 ($347.75) $78,526.09
202 $78,526.09 ($676.40) $ 327.19 ($349.20) $78,176.89
203 $78,176.89 ($676.40) $ 325.74 ($350.66) $77,826.23
204 $77,826.23 ($676.40) $ 324.28 ($352.12) $77,474.11
205 $77,474.11 ($676.40) $ 322.81 ($353.59) $77,120.52
206 $77,120.52 ($676.40) $ 321.34 ($355.06) $76,765.47
207 $76,765.47 ($676.40) $ 319.86 ($356.54) $76,408.93
208 $76,408.93 ($676.40) $ 318.37 ($358.02) $76,050.90
209 $76,050.90 ($676.40) $ 316.88 ($359.52) $75,691.38
210 $75,691.38 ($676.40) $ 315.38 ($361.01) $75,330.37
211 $75,330.37 ($676.40) $ 313.88 ($362.52) $74,967.85
212 $74,967.85 ($676.40) $ 312.37 ($364.03) $74,603.82
213 $74,603.82 ($676.40) $ 310.85 ($365.55) $74,238.28
214 $74,238.28 ($676.40) $ 309.33 ($367.07) $73,871.21
215 $73,871.21 ($676.40) $ 307.80 ($368.60) $73,502.61
216 $73,502.61 ($676.40) $ 306.26 ($370.13) $73,132.47
217 $73,132.47 ($676.40) $ 304.72 ($371.68) $72,760.80
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218 $72,760.80 ($676.40) $ 303.17 ($373.23) $72,387.57
219 $72,387.57 ($676.40) $ 301.61 ($374.78) $72,012.79
220 $72,012.79 ($676.40) $ 300.05 ($376.34) $71,636.45
221 $71,636.45 ($676.40) $ 298.49 ($377.91) $71,258.54
222 $71,258.54 ($676.40) $ 296.91 ($379.48) $70,879.06
223 $70,879.06 ($676.40) $ 295.33 ($381.07) $70,497.99
224 $70,497.99 ($676.40) $ 293.74 ($382.65) $70,115.34
225 $70,115.34 ($676.40) $ 292.15 ($384.25) $69,731.09
226 $69,731.09 ($676.40) $ 290.55 ($385.85) $69,345.24
227 $69,345.24 ($676.40) $ 288.94 ($387.46) $68,957.78
228 $68,957.78 ($676.40) $ 287.32 ($389.07) $68,568.71
229 $68,568.71 ($676.40) $ 285.70 ($390.69) $68,178.02
230 $68,178.02 ($676.40) $ 284.08 ($392.32) $67,785.70
231 $67,785.70 ($676.40) $ 282.44 ($393.95) $67,391.74
232 $67,391.74 ($676.40) $ 280.80 ($395.60) $66,996.15
233 $66,996.15 ($676.40) $ 279.15 ($397.24) $66,598.90
234 $66,598.90 ($676.40) $ 277.50 ($398.90) $66,200.00
235 $66,200.00 ($676.40) $ 275.83 ($400.56) $65,799.44
236 $65,799.44 ($676.40) $ 274.16 ($402.23) $65,397.21
237 $65,397.21 ($676.40) $ 272.49 ($403.91) $64,993.30
238 $64,993.30 ($676.40) $ 270.81 ($405.59) $64,587.71
239 $64,587.71 ($676.40) $ 269.12 ($407.28) $64,180.43
240 $64,180.43 ($676.40) $ 267.42 ($408.98) $63,771.46
241 $63,771.46 ($676.40) $ 265.71 ($410.68) $63,360.78
242 $63,360.78 ($676.40) $ 264.00 ($412.39) $62,948.38
243 $62,948.38 ($676.40) $ 262.28 ($414.11) $62,534.27
244 $62,534.27 ($676.40) $ 260.56 ($415.84) $62,118.44
245 $62,118.44 ($676.40) $ 258.83 ($417.57) $61,700.87
246 $61,700.87 ($676.40) $ 257.09 ($419.31) $61,281.56
247 $61,281.56 ($676.40) $ 255.34 ($421.06) $60,860.51
248 $60,860.51 ($676.40) $ 253.59 ($422.81) $60,437.70
249 $60,437.70 ($676.40) $ 251.82 ($424.57) $60,013.12
250 $60,013.12 ($676.40) $ 250.05 ($426.34) $59,586.78
251 $59,586.78 ($676.40) $ 248.28 ($428.12) $59,158.67
252 $59,158.67 ($676.40) $ 246.49 ($429.90) $58,728.77
253 $58,728.77 ($676.40) $ 244.70 ($431.69) $58,297.07
254 $58,297.07 ($676.40) $ 242.90 ($433.49) $57,863.58
255 $57,863.58 ($676.40) $ 241.10 ($435.30) $57,428.29
256 $57,428.29 ($676.40) $ 239.28 ($437.11) $56,991.18
257 $56,991.18 ($676.40) $ 237.46 ($438.93) $56,552.24
258 $56,552.24 ($676.40) $ 235.63 ($440.76) $56,111.48
259 $56,111.48 ($676.40) $ 233.80 ($442.60) $55,668.89
260 $55,668.89 ($676.40) $ 231.95 ($444.44) $55,224.44
261 $55,224.44 ($676.40) $ 230.10 ($446.29) $54,778.15
262 $54,778.15 ($676.40) $ 228.24 ($448.15) $54,330.00
263 $54,330.00 ($676.40) $ 226.37 ($450.02) $53,879.98
264 $53,879.98 ($676.40) $ 224.50 ($451.90) $53,428.08
265 $53,428.08 ($676.40) $ 222.62 ($453.78) $52,974.30
266 $52,974.30 ($676.40) $ 220.73 ($455.67) $52,518.63
267 $52,518.63 ($676.40) $ 218.83 ($457.57) $52,061.07
268 $52,061.07 ($676.40) $ 216.92 ($459.47) $51,601.59
269 $51,601.59 ($676.40) $ 215.01 ($461.39) $51,140.20
270 $51,140.20 ($676.40) $ 213.08 ($463.31) $50,676.89
271 $50,676.89 ($676.40) $ 211.15 ($465.24) $50,211.65
272 $50,211.65 ($676.40) $ 209.22 ($467.18) $49,744.47
8
273 $49,744.47 ($676.40) $ 207.27 ($469.13) $49,275.35
274 $49,275.35 ($676.40) $ 205.31 ($471.08) $48,804.26
275 $48,804.26 ($676.40) $ 203.35 ($473.04) $48,331.22
276 $48,331.22 ($676.40) $ 201.38 ($475.02) $47,856.20
277 $47,856.20 ($676.40) $ 199.40 ($476.99) $47,379.21
278 $47,379.21 ($676.40) $ 197.41 ($478.98) $46,900.23
279 $46,900.23 ($676.40) $ 195.42 ($480.98) $46,419.25
280 $46,419.25 ($676.40) $ 193.41 ($482.98) $45,936.27
281 $45,936.27 ($676.40) $ 191.40 ($484.99) $45,451.27
282 $45,451.27 ($676.40) $ 189.38 ($487.01) $44,964.26
283 $44,964.26 ($676.40) $ 187.35 ($489.04) $44,475.22
284 $44,475.22 ($676.40) $ 185.31 ($491.08) $43,984.13
285 $43,984.13 ($676.40) $ 183.27 ($493.13) $43,491.01
286 $43,491.01 ($676.40) $ 181.21 ($495.18) $42,995.82
287 $42,995.82 ($676.40) $ 179.15 ($497.25) $42,498.58
288 $42,498.58 ($676.40) $ 177.08 ($499.32) $41,999.26
289 $41,999.26 ($676.40) $ 175.00 ($501.40) $41,497.86
290 $41,497.86 ($676.40) $ 172.91 ($503.49) $40,994.37
291 $40,994.37 ($676.40) $ 170.81 ($505.59) $40,488.79
292 $40,488.79 ($676.40) $ 168.70 ($507.69) $39,981.10
293 $39,981.10 ($676.40) $ 166.59 ($509.81) $39,471.29
294 $39,471.29 ($676.40) $ 164.46 ($511.93) $38,959.36
295 $38,959.36 ($676.40) $ 162.33 ($514.06) $38,445.29
296 $38,445.29 ($676.40) $ 160.19 ($516.21) $37,929.09
297 $37,929.09 ($676.40) $ 158.04 ($518.36) $37,410.73
298 $37,410.73 ($676.40) $ 155.88 ($520.52) $36,890.21
299 $36,890.21 ($676.40) $ 153.71 ($522.69) $36,367.53
300 $36,367.53 ($676.40) $ 151.53 ($524.86) $35,842.66
301 $35,842.66 ($676.40) $ 149.34 ($527.05) $35,315.61
302 $35,315.61 ($676.40) $ 147.15 ($529.25) $34,786.36
303 $34,786.36 ($676.40) $ 144.94 ($531.45) $34,254.91
304 $34,254.91 ($676.40) $ 142.73 ($533.67) $33,721.25
305 $33,721.25 ($676.40) $ 140.51 ($535.89) $33,185.36
306 $33,185.36 ($676.40) $ 138.27 ($538.12) $32,647.23
307 $32,647.23 ($676.40) $ 136.03 ($540.37) $32,106.87
308 $32,106.87 ($676.40) $ 133.78 ($542.62) $31,564.25
309 $31,564.25 ($676.40) $ 131.52 ($544.88) $31,019.37
310 $31,019.37 ($676.40) $ 129.25 ($547.15) $30,472.23
311 $30,472.23 ($676.40) $ 126.97 ($549.43) $29,922.80
312 $29,922.80 ($676.40) $ 124.68 ($551.72) $29,371.08
313 $29,371.08 ($676.40) $ 122.38 ($554.02) $28,817.07
314 $28,817.07 ($676.40) $ 120.07 ($556.32) $28,260.74
315 $28,260.74 ($676.40) $ 117.75 ($558.64) $27,702.10
316 $27,702.10 ($676.40) $ 115.43 ($560.97) $27,141.13
317 $27,141.13 ($676.40) $ 113.09 ($563.31) $26,577.82
318 $26,577.82 ($676.40) $ 110.74 ($565.65) $26,012.17
319 $26,012.17 ($676.40) $ 108.38 ($568.01) $25,444.16
320 $25,444.16 ($676.40) $ 106.02 ($570.38) $24,873.78
321 $24,873.78 ($676.40) $ 103.64 ($572.75) $24,301.02
322 $24,301.02 ($676.40) $ 101.25 ($575.14) $23,725.88
323 $23,725.88 ($676.40) $ 98.86 ($577.54) $23,148.35
324 $23,148.35 ($676.40) $ 96.45 ($579.94) $22,568.40
325 $22,568.40 ($676.40) $ 94.04 ($582.36) $21,986.04
326 $21,986.04 ($676.40) $ 91.61 ($584.79) $21,401.25
327 $21,401.25 ($676.40) $ 89.17 ($587.22) $20,814.03
9
328 $20,814.03 ($676.40) $ 86.73 ($589.67) $20,224.36
329 $20,224.36 ($676.40) $ 84.27 ($592.13) $19,632.23
330 $19,632.23 ($676.40) $ 81.80 ($594.59) $19,037.64
331 $19,037.64 ($676.40) $ 79.32 ($597.07) $18,440.57
332 $18,440.57 ($676.40) $ 76.84 ($599.56) $17,841.01
333 $17,841.01 ($676.40) $ 74.34 ($602.06) $17,238.95
334 $17,238.95 ($676.40) $ 71.83 ($604.57) $16,634.38
335 $16,634.38 ($676.40) $ 69.31 ($607.09) $16,027.30
336 $16,027.30 ($676.40) $ 66.78 ($609.61) $15,417.68
337 $15,417.68 ($676.40) $ 64.24 ($612.15) $14,805.53
338 $14,805.53 ($676.40) $ 61.69 ($614.71) $14,190.82
339 $14,190.82 ($676.40) $ 59.13 ($617.27) $13,573.56
340 $13,573.56 ($676.40) $ 56.56 ($619.84) $12,953.72
341 $12,953.72 ($676.40) $ 53.97 ($622.42) $12,331.30
342 $12,331.30 ($676.40) $ 51.38 ($625.01) $11,706.28
343 $11,706.28 ($676.40) $ 48.78 ($627.62) $11,078.66
344 $11,078.66 ($676.40) $ 46.16 ($630.23) $10,448.43
345 $10,448.43 ($676.40) $ 43.54 ($632.86) $9,815.57
346 $9,815.57 ($676.40) $ 40.90 ($635.50) $9,180.07
347 $9,180.07 ($676.40) $ 38.25 ($638.14) $8,541.93
348 $8,541.93 ($676.40) $ 35.59 ($640.80) $7,901.12
349 $7,901.12 ($676.40) $ 32.92 ($643.47) $7,257.65
350 $7,257.65 ($676.40) $ 30.24 ($646.16) $6,611.49
351 $6,611.49 ($676.40) $ 27.55 ($648.85) $5,962.65
352 $5,962.65 ($676.40) $ 24.84 ($651.55) $5,311.10
353 $5,311.10 ($676.40) $ 22.13 ($654.27) $4,656.83
354 $4,656.83 ($676.40) $ 19.40 ($656.99) $3,999.84
355 $3,999.84 ($676.40) $ 16.67 ($659.73) $3,340.11
356 $3,340.11 ($676.40) $ 13.92 ($662.48) $2,677.63
357 $2,677.63 ($676.40) $ 11.16 ($665.24) $2,012.39
358 $2,012.39 ($676.40) $ 8.38 ($668.01) $1,344.38
359 $1,344.38 ($676.40) $ 5.60 ($670.79) $673.59
360 $673.59 ($676.40) $ 2.81 ($673.59) $0.00

10
6. If the Hall’s want to have as much of an after-tax income when they retire as they
currently have, and assuming they live until they are 80 years old, how much money
should they set aside each month so as to have enough money accumulated in their
retirement nest egg? Assume that annual inflation rate is 4% per year for the whole
term, the investment return is 8% per year before and after retirement, and that their
tax rate is 28% throughout their life.

The Hall's Current Combined Income 75,000


Tax rate 28%
Current After-tax income 54,000
Current Age 30
Retirement Age 65
Expected age at death 80
Number of Years until retirement 35
Number of Years in Retirement Phase 15
Annual Inflation Rate 4%

Equivalent Annual Income Desired at age 65 $213,088.81


PV = -54,000, I/Y= 4, N = 35, CPT = 0, CPT FV =
Annual Investment Yield 8%

Future Value of annual withdrawals needed during retirement phase


Income
Age Needed
FV = $213,088.81*( 1+ i)^n
66 221,612.3579
67 230,476.8522
68 239,695.9263
69 249,283.7634
70 259,255.1139
71 269,625.3185
72 280,410.3312
73 291,626.7445
74 303,291.8142
75 315,423.4868
76 328,040.4263
77 341,162.0433
78 354,808.5251
79 369,000.8661
80 383,760.9007
Total: 4,437,474.47
Present Value at age 65 (Retirement Nest Egg that must be
accumulated) $2,394,895.49
PV of FV 1 (n = 1) to PV of FV15 (n = 15) at I/Y = 8%
Monthly deposit needed to reach retirement goal ($1,044.04)
FV = -2,394,895, I/Y= 8/12, N = 420, PV = 0, CPT PMT =

11
7. If the Hall’s continue paying the minimum 3% on their credit card debt each month, how long will
it take them to pay it off and how much total interest will they have paid? If you were Dan, what
would you advice them to do?

Credit Card Balance 10,000


Interest Rate 15.99%
3% Minimum Payment -300
Number of months required to pay off debt 44.367051

Total Interest Paid 3310.1153

Dan's Advice
1. Continue paying minimum on:
Car ($221.58)
College Loans ($527.80)

2. Live cheap for the next few months and pay maximum available on credit card debt

Available income after rent, car payment, and college loan payments = $2,550.62
They should be able to clear the debt within 6 months.

3. Then start putting money away towards the house down payment, child's education, and
retirement
Down payment ($1,326.92)
Child's education ($319.28)
Retirement plan ($1,044.04)
Note...They may have to save a little less than the calculated amount each month…
($2,690.23)

4. Within 24 months, their college loans will be paid off, the deposit towards the down payment will have
ended, and they could work towards paying off their mortgage as quickly as possible.

12