Economics  

ECONOMICS

1.  Retirement Savings

Given: 
Uninflated growth of capital is 3% per year.
You begin paying into a retirement program when you turn 25.
After25 years, you begin collecting $50,000 annually
You collect for 40 years.

Find:
a. What is the present value of the annuity?
b. What are your annual contributions to have that amount in the account?
c. How much will be in the account when you begin collecting?
d. Is the annual contribution a reasonable amount to expect you can contribute after you pay taxes on a $50,000 salary?
e. Wait 35 years to begin collection and receive for 30 years.  Do you contribute more or less each month?
f.  To retire at 50, what is the best approach?

2.  Auto Purchase

Given: 
A new TU engineer purchases a new Whizmobile for $25,000.
She borrows the money at an interest of 1%/mo.
Loan period is 60 months.

Find:
a. Future value, if a single balloon payment is made at 60 months.
b. Monthly payments if made at the end of each month.
c. Total amount paid (cash-flow)
d. Total Interest paid
e. Amount unpaid after 12 months
f.  Assume the same monthly payments were deposited in savings program.  The account pays 1% per month.
    How many months would it before you had $25,000?

3.  Rule of 72

Given: 
$1000 to invest
Interest compounded 10% per year

Find:
a. How long will it take to double your money?  (This is the key to the 'rule of 72').
b. What is the effective monthly interest rate?

4.  House Purchase

Given:  
Engineer with a salary of $40,000 per year.
Federal and state income tax of 25%
Mortgage company will lend 2.5 times the annual salary for a house.
Interest rate is 7% per year.
Loan period is 30 years.
Use uniform series of annual payments procedure.

Find:
Create a spreadsheet with the following columns.
Calculate the values for the end of each year.

a. Principal remaining at start of year
b. Interest owed for year
c. Annual payment
d. Amount of payment that is principal
e. Total payments to date
f.  Total interest to date
g. Double the payment.  Apply the extra amount to principal only.  Tabulate the lower principal remaining.
     How long does it take to pay off the loan, with double payments? 

Calculate the following items for a 15 year loan.
a. Total cash flow (amount paid).
b. Total interest paid.

The next sections should be added to the spreadsheet after taxes.
a. Effect on income tax for interest paid
b. Cash flow after taxes

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