Naz 1

Angelina C. Naz

Finance & Economics 1

November 09,2021

Task 1

To help Janette cover her college expense, parents provide Janette with a monthly

allowance of $340. Besides, Janette earns $600 per month from the part-time job. Janette has to

pay $200 in rent expense and $ 75 per month for her car insurance. Janette plans to spend

monthly $80 on clothes, $50 for personal care, and $100 for entertainment. Janette also estimates

her monthly eating out expense at $140, and she expects that $100 will be enough to cover all

her other spending. Given that Janette follows the above income/spending schedule, how much

can she put aside within eight months? Assume Janette puts the amount she put aside within

eight months on the account that earns 4.75% per year, compounded annually. What would be

the balance of this account in five years? Round your answers to the nearest dollar. Show your

work.

Janette’s Income and Expenditures

FOR EIGHT (8)

TOTAL
  PER MONTH MONTHS
SOURCE OF INCOME      
Monthly Allowance $340.00 $2,720.00  
Part-time earnings $600.00 $4,800.00 $ 7,520.00
EXPENDITURES      
Rental fee $200.00 $1,600.00  
Insurance fee $75.00 $600.00  
Clothing expense $80.00 $640.00  
Hygiene /personal care expense $50.00 $400.00  
Entertainment expense $100.00 $800.00  
Meal expense $140.00 $1,120.00  
Other expenses $100.00 $800.00 $ 5,960.00
Total Excess amount for Deposit     $ 1,560.00
 Naz 2

Explanation as follows:

Total Monthly Income:

$340+$600=$940.00

Total Monthly Expenditure:

$75+$200+$80+$50+$100+$140+$100=$745.00

Monthly Deposit:

$940-$745=$195.00

Eight (8) Months Deposit:

$195 x 8 = $1,560.00

Answer 1. Janette can put deposit of $1,560.00 for eight (8) months.

The bank deposit balance is compounded annually with 4.75% interest income.

    Interest earned at  
No of years Beginning Balance 4.75% Ending balance
1st year $ 1,560.00 $ 74.10 1,634.10
2nd year $ 1,634.10 $ 77.62 1,711.72
3rd year $ 1,711.72 $ 81.31 1,793.03
4th year $ 1,793.03 $ 85.17 1,878.20
5th year $ 1,878.20 $ 89.21 $ 1,967.41
Interest earned for 5years $ 407.41  

The interest earned for first (1st ) year is computed as Principal x Interest rate

$1,560.00 x 4.75%= $74.10

To get interest earned on the following years, ending balance from previous year multiply by

interest rate, and so on.

For Second (2nd ) year : ($1,634.10) x 4.75%= $77.62

 Naz 3

For the Third (3rd) year: ($1,711.72) x 4.75%= $81.31

For the Fourth (4th) year: $1,793.03 x 4.75% =$85.17

For the Fifth Year (5th) year $1,878.20 x4.75% = $89.21

The total compounded interest of Janette’s account for five years is $407.41.

Answer 2. The total balance of Janette’s account for five years is $ 1,967.41.

The ending balance of an account with compound interest can also be calculated based on the
following formula:

C=P(1+r) ⁿ

P -Principal

r- interest rate

n- no. of period

C =$1,560.00 (1+0.0475) ^ 5

= $1,560.00 (1.0475) ^ 5

=$1,560.00 (1.2611599.14)

C= $ 1,967.41 for 5 years.