Case Study 3:

Wake Up and Smell the Coffee!

Submitted to:

Mr. Felix D. Cena

Submitted by:

Alabastro, Patricia

Delos Angeles, Karlo Jay

Ortega, Catherine Joy

October 15, 2020

 1. Based on the information provided in Table 1 if the Halls continue making minimum
payments on their outstanding debts, how much money will they have left over for all other
expenses?

In computing how much money will the Halls have left over for all other expenses after
paying their outstanding debts, the first thing that we do is to compute first the total amount of
their monthly income and deduct with its interest rate of 28%. After deducting the interest rate
divide it to 12 months in order for us to get the total amount of monthly income. Here is the
computation in getting the monthly income.

Monthly Income
Marty Salary $ 50,000
Laura Salary 25,000
Total Income Before Tax (Annually) 75,000
Less: Income Tax 28% ($75,000x28%) 21,000
Total Income After Tax (Annually) 54,000
Divide: 12 months 12
Total Monthly Income After Tax $ 4,500

As stated above, the monthly income after tax by the couple is $4,500. The next thing that we
do is computing the monthly expenses of the couple. The computation is the following:

Monthly Expenses Car Loan College Loan

House Rent $ 1,200
Credit Card
($10,000/3%) 300 nper= 24 nper= 24
Car Loan 221.58 rate= 0.00499167 (5.99%/12) rate= 0.004375 (5.25%/12)
College Loan 527.8 PV= $ (5,000) PV= $ (12,000)
Total Monthly Expenses $ 2,249.38 FV= 0 FV= 0
PMT= ? PMT= ?
PMT =rate,nper,-pv,fv,0 PMT =rate,nper,-pv,fv,0
PMT= $221.58 PMT= $527.80

Above is a table shows that the Halls has a total monthly expenses of $2,249.38 that composed
of house rent, credit card, car loan and college loan.. The last step that we do is computing the
money will the Halls have left over for all other expenses. The computations are as follows:
 Total Monthly Income After Tax $ 4,500
Less: Total Monthly Expenses $ 2,249.38
Hall's Monely Left $ 2,250.62

The table above shows the couple’s money have left for other expenses. It is computed
by the amount of total monthly income less the amount of total monthly expenses. Thus, the
couple has a monthly income of $4,500 and a monthly expenses of $2,249.38. By subtracting
the expenses to the income it will result to money left over for other expenses for the amount
of $2,250.62.

2. How much money will Laura and Marty have to deposit each month (beginning one month
after the child is born and ending on his or her 18th birthday) in order to have enough saved
up for their child’s college 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.

We first have to find out how much is the total college expenses of their child in 4 years in order
to determine the amount that they need to save or deposit every month.

Annual cost of college education = $20,000

Interest rate = 4%
Yield rate = 8%

Let periods be the age of their child at 18th, 19th, 20th, 21th.

Periods Present Value FV Factor Future Value

0 20000 0 0.00
18 20000 2.0258 40,516.00
19 20000 2.1068 42,136.00
20 20000 2.1911 43,822.00
21 20000 2.2788 45,576.00
Total amount for college
expenses $172,050.00
Since there is a yield on investment, which means a return measure for an investment over a
set period of time, we need to find the present value of each year of college separately.We
further calculate:

Periods Future Value FV Factor Present Value

0 40,516 0 0.00
1 42,136 1.08 45,506.88
2 43,822 1.1664 51,113.98
3 45,576 1.2597 57,412.09
Final total amount to be saved for college
expenses $154,032.95

The total amount of PV that they need to save or deposit for their child’s college expense is
$154,032.95. To further, we will compute for their monthly payment or deposits.

0.08/12 months = 0.67% (monthly interest)

𝐹𝑉
PMT = (1+𝑖 )𝑛−1
𝑖

154,032.95
PMT = (1+0.0067 )216−1
0.0067

154,032.95
PMT =
482.197795

PMT = $319.44

The monthly savings Marty and Laura Hall will need is $319.44

3. How much money will the Halls 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 and that the down payment is 10% of the price.

We have to compute the amount of downpayment and closing cost in order to find the future
value.

Cost of House 140,000

Down payment Rate 0.10
Down payment $14,000
 Cost of House 140,000
Less: Down Payment 14,000
Loan Amount 126,000
Closing Cost Rate 0.02
Closing Cost $2,520
TOTAL $16,520

Halls have to set aside a total of $16,520 annually, and given the annual rate of 8%, we can now
solve for their monthly needed savings for a new house.

0.08/12 months = 0.67% (monthly interest)

𝐹𝑉
PMT = (1+𝑖 )𝑛−1
𝑖

16,520
PMT = (1+0.0067 )12−1
0.0067

16,520
PMT =
12.45222629

PMT = 1,326.67

The monthly savings that Halls will need to set aside each month is $1,326.67

4. If the interest rate on a 30-year mortgage is at 5% per year when the Halls purchase their
$140,000 house, how much will their mortgage payment be? Ignore insurance and taxes.

Cost of House 140,000

Downpayment 14,000

Present Value 126,000

For accurate PMT, we calculated through Excel using a formula:

=PMT(rate,nper,pv)
i = 0.42% (0.05/12 months)
nper = 360
 PV = (126,000)
=PMT(0.42,260,-126000)

PMT = $676.70

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

Months Beginning Amount Payment Interest Repayment of Principal Ending Balance

1 126,000 676.70 525.42 151.28 125,848.72

2 125,848.72 676.70 524.789 151.91 125,696.80

3 125,696.80 676.70 524.156 152.55 125,544.25

4 125,544.25 676.70 523.52 153.18 125,391.07

5 125,391.07 676.70 522.881 153.82 125,237.25

6 125,237.25 676.70 522.239 154.46 125,082.78

7 125,082.78 676.70 521.595 155.11 124,927.68

8 124,927.68 676.70 520.948 155.75 124,771.92

9 124,771.92 676.70 520.299 156.40 124,615.52

10 124,615.52 676.70 519.647 157.06 124,458.46

11 124,458.46 676.70 518.992 157.71 124,300.75

12 124,300.75 676.70 518.334 158.37 124,142.38

13 124,142.38 676.70 517.674 159.03 123,983.35

14 123,983.35 676.70 517.011 159.69 123,823.66

15 123,823.66 676.70 516.345 160.36 123,663.30

16 123,663.30 676.70 515.676 161.03 123,502.27

17 123,502.27 676.70 515.004 161.70 123,340.57

18 123,340.57 676.70 514.33 162.37 123,178.20

19 123,178.20 676.70 513.653 163.05 123,015.15

20 123,015.15 676.70 512.973 163.73 122,851.42

21 122,851.42 676.70 512.29 164.41 122,687.01

22 122,687.01 676.70 511.605 165.10 122,521.91

23 122,521.91 676.70 510.916 165.79 122,356.12

24 122,356.12 676.70 510.225 166.48 122,189.64

25 122,189.64 676.70 509.531 167.17 122,022.47

26 122,022.47 676.70 508.834 167.87 121,854.60

27 121,854.60 676.70 508.134 168.57 121,686.03

28 121,686.03 676.70 507.431 169.27 121,516.76

29 121,516.76 676.70 506.725 169.98 121,346.78

30 121,346.78 676.70 506.016 170.69 121,176.09

31 121,176.09 676.70 505.304 171.40 121,004.69

32 121,004.69 676.70 504.59 172.11 120,832.58

33 120,832.58 676.70 503.872 172.83 120,659.75

34 120,659.75 676.70 503.151 173.55 120,486.20

35 120,486.20 676.70 502.427 174.28 120,311.92

36 120,311.92 676.70 501.701 175.00 120,136.92

37 120,136.92 676.70 500.971 175.73 119,961.19

38 119,961.19 676.70 500.238 176.47 119,784.72

39 119,784.72 676.70 499.502 177.20 119,607.52

40 119,607.52 676.70 498.763 177.94 119,429.58

41 119,429.58 676.70 498.021 178.68 119,250.90

42 119,250.90 676.70 497.276 179.43 119,071.47

43 119,071.47 676.70 496.528 180.18 118,891.30

44 118,891.30 676.70 495.777 180.93 118,710.37

45 118,710.37 676.70 495.022 181.68 118,528.69

46 118,528.69 676.70 494.265 182.44 118,346.25

47 118,346.25 676.70 493.504 183.20 118,163.05

48 118,163.05 676.70 492.74 183.96 117,979.09

49 117,979.09 676.70 491.973 184.73 117,794.36

50 117,794.36 676.70 491.202 185.50 117,608.85

51 117,608.85 676.70 490.429 186.27 117,422.58

52 117,422.58 676.70 489.652 187.05 117,235.53

53 117,235.53 676.70 488.872 187.83 117,047.70

54 117,047.70 676.70 488.089 188.61 116,859.08

55 116,859.08 676.70 487.302 189.40 116,669.68

56 116,669.68 676.70 486.513 190.19 116,479.49

57 116,479.49 676.70 485.719 190.98 116,288.51

58 116,288.51 676.70 484.923 191.78 116,096.73

59 116,096.73 676.70 484.123 192.58 115,904.15

60 115,904.15 676.70 483.32 193.38 115,710.77

61 115,710.77 676.70 482.514 194.19 115,516.58

62 115,516.58 676.70 481.704 195.00 115,321.58

63 115,321.58 676.70 480.891 195.81 115,125.76

64 115,125.76 676.70 480.074 196.63 114,929.14

65 114,929.14 676.70 479.254 197.45 114,731.69

66 114,731.69 676.70 478.431 198.27 114,533.41

67 114,533.41 676.70 477.604 199.10 114,334.32

68 114,334.32 676.70 476.774 199.93 114,134.39

69 114,134.39 676.70 475.94 200.76 113,933.62

70 113,933.62 676.70 475.103 201.60 113,732.02

71 113,732.02 676.70 474.263 202.44 113,529.58

72 113,529.58 676.70 473.418 203.28 113,326.30

73 113,326.30 676.70 472.571 204.13 113,122.16

74 113,122.16 676.70 471.719 204.98 112,917.18

75 112,917.18 676.70 470.865 205.84 112,711.34

76 112,711.34 676.70 470.006 206.70 112,504.65

77 112,504.65 676.70 469.144 207.56 112,297.09

78 112,297.09 676.70 468.279 208.42 112,088.66

79 112,088.66 676.70 467.41 209.29 111,879.37

80 111,879.37 676.70 466.537 210.17 111,669.20

81 111,669.20 676.70 465.661 211.04 111,458.16

82 111,458.16 676.70 464.781 211.92 111,246.24

83 111,246.24 676.70 463.897 212.81 111,033.43

84 111,033.43 676.70 463.009 213.69 110,819.74

85 110,819.74 676.70 462.118 214.59 110,605.15

86 110,605.15 676.70 461.223 215.48 110,389.67

87 110,389.67 676.70 460.325 216.38 110,173.29

 88 110,173.29 676.70 459.423 217.28 109,956.01

89 109,956.01 676.70 458.517 218.19 109,737.83

90 109,737.83 676.70 457.607 219.10 109,518.73

91 109,518.73 676.70 456.693 220.01 109,298.72

92 109,298.72 676.70 455.776 220.93 109,077.79

93 109,077.79 676.70 454.854 221.85 108,855.94

94 108,855.94 676.70 453.929 222.77 108,633.17

95 108,633.17 676.70 453 223.70 108,409.47

96 108,409.47 676.70 452.067 224.64 108,184.83

97 108,184.83 676.70 451.131 225.57 107,959.26

98 107,959.26 676.70 450.19 226.51 107,732.74

99 107,732.74 676.70 449.246 227.46 107,505.29

100 107,505.29 676.70 448.297 228.41 107,276.88

101 107,276.88 676.70 447.345 229.36 107,047.52

102 107,047.52 676.70 446.388 230.32 106,817.21

103 106,817.21 676.70 445.428 231.28 106,585.93

104 106,585.93 676.70 444.463 232.24 106,353.69

105 106,353.69 676.70 443.495 233.21 106,120.48

106 106,120.48 676.70 442.522 234.18 105,886.30

107 105,886.30 676.70 441.546 235.16 105,651.14

108 105,651.14 676.70 440.565 236.14 105,415.01

109 105,415.01 676.70 439.581 237.12 105,177.88

110 105,177.88 676.70 438.592 238.11 104,939.77

111 104,939.77 676.70 437.599 239.10 104,700.67

112 104,700.67 676.70 436.602 240.10 104,460.57

113 104,460.57 676.70 435.601 241.10 104,219.46

114 104,219.46 676.70 434.595 242.11 103,977.35

115 103,977.35 676.70 433.586 243.12 103,734.24

116 103,734.24 676.70 432.572 244.13 103,490.11

117 103,490.11 676.70 431.554 245.15 103,244.96

118 103,244.96 676.70 430.531 246.17 102,998.78

119 102,998.78 676.70 429.505 247.20 102,751.59

120 102,751.59 676.70 428.474 248.23 102,503.36

121 102,503.36 676.70 427.439 249.26 102,254.09

122 102,254.09 676.70 426.4 250.30 102,003.79

123 102,003.79 676.70 425.356 251.35 101,752.44

124 101,752.44 676.70 424.308 252.40 101,500.04

125 101,500.04 676.70 423.255 253.45 101,246.60

126 101,246.60 676.70 422.198 254.50 100,992.09

127 100,992.09 676.70 421.137 255.57 100,736.53

128 100,736.53 676.70 420.071 256.63 100,479.89

129 100,479.89 676.70 419.001 257.70 100,222.19

130 100,222.19 676.70 417.927 258.78 99,963.41

131 99,963.41 676.70 416.847 259.86 99,703.56

132 99,703.56 676.70 415.764 260.94 99,442.62

133 99,442.62 676.70 414.676 262.03 99,180.59

134 99,180.59 676.70 413.583 263.12 98,917.47

135 98,917.47 676.70 412.486 264.22 98,653.25

136 98,653.25 676.70 411.384 265.32 98,387.93

137 98,387.93 676.70 410.278 266.43 98,121.51

138 98,121.51 676.70 409.167 267.54 97,853.97

139 97,853.97 676.70 408.051 268.65 97,585.32

140 97,585.32 676.70 406.931 269.77 97,315.55

141 97,315.55 676.70 405.806 270.90 97,044.65

142 97,044.65 676.70 404.676 272.03 96,772.62

143 96,772.62 676.70 403.542 273.16 96,499.46

144 96,499.46 676.70 402.403 274.30 96,225.16

145 96,225.16 676.70 401.259 275.44 95,949.72

146 95,949.72 676.70 400.11 276.59 95,673.12

147 95,673.12 676.70 398.957 277.75 95,395.38

148 95,395.38 676.70 397.799 278.90 95,116.47

149 95,116.47 676.70 396.636 280.07 94,836.41

150 94,836.41 676.70 395.468 281.24 94,555.17

151 94,555.17 676.70 394.295 282.41 94,272.76

152 94,272.76 676.70 393.117 283.59 93,989.18

153 93,989.18 676.70 391.935 284.77 93,704.41

154 93,704.41 676.70 390.747 285.96 93,418.45

155 93,418.45 676.70 389.555 287.15 93,131.30

156 93,131.30 676.70 388.358 288.35 92,842.96

157 92,842.96 676.70 387.155 289.55 92,553.41

158 92,553.41 676.70 385.948 290.76 92,262.65

159 92,262.65 676.70 384.735 291.97 91,970.69

160 91,970.69 676.70 383.518 293.19 91,677.50

161 91,677.50 676.70 382.295 294.41 91,383.09

162 91,383.09 676.70 381.067 295.64 91,087.46

163 91,087.46 676.70 379.835 296.87 90,790.59

164 90,790.59 676.70 378.597 298.11 90,492.48

165 90,492.48 676.70 377.354 299.35 90,193.13

166 90,193.13 676.70 376.105 300.60 89,892.53

167 89,892.53 676.70 374.852 301.85 89,590.68

168 89,590.68 676.70 373.593 303.11 89,287.57

169 89,287.57 676.70 372.329 304.37 88,983.20

170 88,983.20 676.70 371.06 305.64 88,677.55

171 88,677.55 676.70 369.785 306.92 88,370.64

172 88,370.64 676.70 368.506 308.20 88,062.44

173 88,062.44 676.70 367.22 309.48 87,752.96

174 87,752.96 676.70 365.93 310.77 87,442.18

175 87,442.18 676.70 364.634 312.07 87,130.11

176 87,130.11 676.70 363.333 313.37 86,816.74

177 86,816.74 676.70 362.026 314.68 86,502.06

178 86,502.06 676.70 360.714 315.99 86,186.07

179 86,186.07 676.70 359.396 317.31 85,868.77

180 85,868.77 676.70 358.073 318.63 85,550.14

181 85,550.14 676.70 356.744 319.96 85,230.18

182 85,230.18 676.70 355.41 321.29 84,908.88

183 84,908.88 676.70 354.07 322.63 84,586.25

184 84,586.25 676.70 352.725 323.98 84,262.27

185 84,262.27 676.70 351.374 325.33 83,936.94

186 83,936.94 676.70 350.017 326.69 83,610.26

187 83,610.26 676.70 348.655 328.05 83,282.21

188 83,282.21 676.70 347.287 329.42 82,952.79

189 82,952.79 676.70 345.913 330.79 82,622.00

190 82,622.00 676.70 344.534 332.17 82,289.83

191 82,289.83 676.70 343.149 333.55 81,956.28

192 81,956.28 676.70 341.758 334.95 81,621.33

193 81,621.33 676.70 340.361 336.34 81,284.99

194 81,284.99 676.70 338.958 337.74 80,947.24

195 80,947.24 676.70 337.55 339.15 80,608.09

196 80,608.09 676.70 336.136 340.57 80,267.52

197 80,267.52 676.70 334.716 341.99 79,925.54

198 79,925.54 676.70 333.289 343.41 79,582.12

199 79,582.12 676.70 331.857 344.85 79,237.28

200 79,237.28 676.70 330.419 346.28 78,890.99

201 78,890.99 676.70 328.975 347.73 78,543.26

202 78,543.26 676.70 327.525 349.18 78,194.09

203 78,194.09 676.70 326.069 350.63 77,843.45

204 77,843.45 676.70 324.607 352.10 77,491.36

205 77,491.36 676.70 323.139 353.56 77,137.79

206 77,137.79 676.70 321.665 355.04 76,782.75

207 76,782.75 676.70 320.184 356.52 76,426.23

208 76,426.23 676.70 318.697 358.01 76,068.23

209 76,068.23 676.70 317.205 359.50 75,708.73

210 75,708.73 676.70 315.705 361.00 75,347.73

211 75,347.73 676.70 314.2 362.50 74,985.23

212 74,985.23 676.70 312.688 364.01 74,621.21

213 74,621.21 676.70 311.17 365.53 74,255.68

214 74,255.68 676.70 309.646 367.06 73,888.62

215 73,888.62 676.70 308.116 368.59 73,520.04

216 73,520.04 676.70 306.579 370.12 73,149.91

217 73,149.91 676.70 305.035 371.67 72,778.24

218 72,778.24 676.70 303.485 373.22 72,405.02

219 72,405.02 676.70 301.929 374.77 72,030.25

220 72,030.25 676.70 300.366 376.34 71,653.91

221 71,653.91 676.70 298.797 377.91 71,276.01

222 71,276.01 676.70 297.221 379.48 70,896.52

223 70,896.52 676.70 295.639 381.06 70,515.46

224 70,515.46 676.70 294.049 382.65 70,132.81

225 70,132.81 676.70 292.454 384.25 69,748.56

226 69,748.56 676.70 290.851 385.85 69,362.70

227 69,362.70 676.70 289.242 387.46 68,975.24

228 68,975.24 676.70 287.627 389.08 68,586.17

229 68,586.17 676.70 286.004 390.70 68,195.47

230 68,195.47 676.70 284.375 392.33 67,803.14

231 67,803.14 676.70 282.739 393.96 67,409.18

232 67,409.18 676.70 281.096 395.61 67,013.57

233 67,013.57 676.70 279.447 397.26 66,616.31

234 66,616.31 676.70 277.79 398.91 66,217.40

235 66,217.40 676.70 276.127 400.58 65,816.82

236 65,816.82 676.70 274.456 402.25 65,414.57

237 65,414.57 676.70 272.779 403.92 65,010.65

238 65,010.65 676.70 271.094 405.61 64,605.04

239 64,605.04 676.70 269.403 407.30 64,197.74

240 64,197.74 676.70 267.705 409.00 63,788.74

241 63,788.74 676.70 265.999 410.70 63,378.04

242 63,378.04 676.70 264.286 412.42 62,965.62

243 62,965.62 676.70 262.567 414.14 62,551.48

244 62,551.48 676.70 260.84 415.86 62,135.62

245 62,135.62 676.70 259.106 417.60 61,718.02

246 61,718.02 676.70 257.364 419.34 61,298.68

247 61,298.68 676.70 255.616 421.09 60,877.60

248 60,877.60 676.70 253.86 422.84 60,454.75

249 60,454.75 676.70 252.096 424.61 60,030.15

250 60,030.15 676.70 250.326 426.38 59,603.77

251 59,603.77 676.70 248.548 428.16 59,175.61

252 59,175.61 676.70 246.762 429.94 58,745.67

253 58,745.67 676.70 244.969 431.73 58,313.94

254 58,313.94 676.70 243.169 433.53 57,880.40

255 57,880.40 676.70 241.361 435.34 57,445.06

256 57,445.06 676.70 239.546 437.16 57,007.90

257 57,007.90 676.70 237.723 438.98 56,568.92

258 56,568.92 676.70 235.892 440.81 56,128.11

259 56,128.11 676.70 234.054 442.65 55,685.46

260 55,685.46 676.70 232.208 444.49 55,240.97

261 55,240.97 676.70 230.355 446.35 54,794.62

262 54,794.62 676.70 228.494 448.21 54,346.41

263 54,346.41 676.70 226.625 450.08 53,896.33

264 53,896.33 676.70 224.748 451.96 53,444.38

265 53,444.38 676.70 222.863 453.84 52,990.54

266 52,990.54 676.70 220.971 455.73 52,534.80

267 52,534.80 676.70 219.07 457.63 52,077.17

268 52,077.17 676.70 217.162 459.54 51,617.63

269 51,617.63 676.70 215.246 461.46 51,156.17

270 51,156.17 676.70 213.321 463.38 50,692.79

271 50,692.79 676.70 211.389 465.31 50,227.47

272 50,227.47 676.70 209.449 467.25 49,760.22

273 49,760.22 676.70 207.5 469.20 49,291.02

274 49,291.02 676.70 205.544 471.16 48,819.86

275 48,819.86 676.70 203.579 473.12 48,346.73

276 48,346.73 676.70 201.606 475.10 47,871.63

277 47,871.63 676.70 199.625 477.08 47,394.56

278 47,394.56 676.70 197.635 479.07 46,915.49

279 46,915.49 676.70 195.638 481.07 46,434.42

280 46,434.42 676.70 193.632 483.07 45,951.35

281 45,951.35 676.70 191.617 485.09 45,466.26

282 45,466.26 676.70 189.594 487.11 44,979.15

283 44,979.15 676.70 187.563 489.14 44,490.01

284 44,490.01 676.70 185.523 491.18 43,998.83

285 43,998.83 676.70 183.475 493.23 43,505.61

286 43,505.61 676.70 181.418 495.28 43,010.32

287 43,010.32 676.70 179.353 497.35 42,512.97

288 42,512.97 676.70 177.279 499.42 42,013.55

289 42,013.55 676.70 175.196 501.51 41,512.04

290 41,512.04 676.70 173.105 503.60 41,008.44

291 41,008.44 676.70 171.005 505.70 40,502.74

292 40,502.74 676.70 168.896 507.81 39,994.94

293 39,994.94 676.70 166.779 509.92 39,485.01

294 39,485.01 676.70 164.653 512.05 38,972.96

295 38,972.96 676.70 162.517 514.19 38,458.78

296 38,458.78 676.70 160.373 516.33 37,942.45

297 37,942.45 676.70 158.22 518.48 37,423.96

298 37,423.96 676.70 156.058 520.65 36,903.32

299 36,903.32 676.70 153.887 522.82 36,380.50

300 36,380.50 676.70 151.707 525.00 35,855.50

301 35,855.50 676.70 149.517 527.19 35,328.32

302 35,328.32 676.70 147.319 529.38 34,798.93

303 34,798.93 676.70 145.112 531.59 34,267.34

304 34,267.34 676.70 142.895 533.81 33,733.53

305 33,733.53 676.70 140.669 536.03 33,197.50

306 33,197.50 676.70 138.434 538.27 32,659.23

307 32,659.23 676.70 136.189 540.51 32,118.72

308 32,118.72 676.70 133.935 542.77 31,575.95

309 31,575.95 676.70 131.672 545.03 31,030.92

310 31,030.92 676.70 129.399 547.30 30,483.61

311 30,483.61 676.70 127.117 549.59 29,934.02

312 29,934.02 676.70 124.825 551.88 29,382.15

313 29,382.15 676.70 122.524 554.18 28,827.97

314 28,827.97 676.70 120.213 556.49 28,271.48

315 28,271.48 676.70 117.892 558.81 27,712.66

316 27,712.66 676.70 115.562 561.14 27,151.52

317 27,151.52 676.70 113.222 563.48 26,588.04

318 26,588.04 676.70 110.872 565.83 26,022.21

319 26,022.21 676.70 108.513 568.19 25,454.02

320 25,454.02 676.70 106.143 570.56 24,883.46

321 24,883.46 676.70 103.764 572.94 24,310.52

322 24,310.52 676.70 101.375 575.33 23,735.19

323 23,735.19 676.70 98.9757 577.73 23,157.46

324 23,157.46 676.70 96.5666 580.14 22,577.33

325 22,577.33 676.70 94.1475 582.56 21,994.77

326 21,994.77 676.70 91.7182 584.99 21,409.79

327 21,409.79 676.70 89.2788 587.42 20,822.36

328 20,822.36 676.70 86.8292 589.87 20,232.49

329 20,232.49 676.70 84.3695 592.33 19,640.15

330 19,640.15 676.70 81.8994 594.80 19,045.35

331 19,045.35 676.70 79.4191 597.28 18,448.07

332 18,448.07 676.70 76.9284 599.77 17,848.29

333 17,848.29 676.70 74.4274 602.28 17,246.02

334 17,246.02 676.70 71.9159 604.79 16,641.23

335 16,641.23 676.70 69.3939 607.31 16,033.92

336 16,033.92 676.70 66.8614 609.84 15,424.08

337 15,424.08 676.70 64.3184 612.38 14,811.69

338 14,811.69 676.70 61.7648 614.94 14,196.75

339 14,196.75 676.70 59.2005 617.50 13,579.25

340 13,579.25 676.70 56.6255 620.08 12,959.17

341 12,959.17 676.70 54.0397 622.66 12,336.51

342 12,336.51 676.70 51.4432 625.26 11,711.25

343 11,711.25 676.70 48.8359 627.87 11,083.38

344 11,083.38 676.70 46.2177 630.49 10,452.90

345 10,452.90 676.70 43.5886 633.11 9,819.78

346 9,819.78 676.70 40.9485 635.75 9,184.03

347 9,184.03 676.70 38.2974 638.41 8,545.62

348 8,545.62 676.70 35.6352 641.07 7,904.55

349 7,904.55 676.70 32.962 643.74 7,260.81

350 7,260.81 676.70 30.2776 646.43 6,614.39

351 6,614.39 676.70 27.582 649.12 5,965.26

352 5,965.26 676.70 24.8752 651.83 5,313.44

353 5,313.44 676.70 22.157 654.55 4,658.89

354 4,658.89 676.70 19.4276 657.28 4,001.61

355 4,001.61 676.70 16.6867 660.02 3,341.60

356 3,341.60 676.70 13.9345 662.77 2,678.83

357 2,678.83 676.70 11.1707 665.53 2,013.30

358 2,013.30 676.70 8.39544 668.31 1,344.99

359 1,344.99 676.70 5.6086 671.09 673.89

360 673.89 676.70 2.81013 673.89 0.00

6. If the Halls 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.

Monthly Income
Marty Salary $ 50,000
Laura Salary 25,000
Total Income Before Tax (Annually) 75,000
Less: Income Tax 28% ($75,000x28%) 21,000
Total Income After Tax (Annually) $ 54,000

As stated above, the Halls has a total annual income after tax in the amount of $54,000.
They are currently 30 years old and has a plan of retiring at the age of 65 years old. This means
that they have 35 years more until they will get retired. The future value of their current annual
income after tax today will not be the same as the value to the future. The computations of
determining the future value are as follows:

FV = PV(1 + rate)n

nper= 35
rate= 4%
PV= -54000
PMT= 0
FV= ?

FV= rate,nper,PMT,-PV
FV= $213,088.81

After getting the future value of their annual income at the age 65 years old. The
statement says that after they retired, the inflation is increasing 4% per year. This means that
the desired income when they become 65 years old is the amount of $213,088, 81. On the next
year, when they become 66 years old the desired income will increase to 4% and it would be
total to $221,612.36. The desired income is computed as previous desired income multiplied it
by 104%. Meanwhile in getting the present value of the desired income, we just need to
multiply the desired income with its corresponding PV factor of 8%. The same computations
will follow until it reached the age of 80. The total present value are sum up in order to get the
total amount of present value. The computation are as follows:
 PV factor of
Age Desired Income 8% Income Needed
65 $213,088.81
66 $221,612.36 0.92593 $205,197.53
67 $230,476.85 0.85734 $197,597.02
68 $239,695.93 0.79383 $190,277.82
69 $249,283.76 0.73503 $183,231.04
70 $259,255.11 0.68058 $176,443.85
71 $269,625.32 0.63017 $169,909.79
72 $280,410.33 0.58349 $163,616.62
73 $291,626.74 0.54027 $157,557.18
74 $303,291.81 0.50025 $151,721.73
75 $315,423.49 0.46319 $146,101.00
76 $328,040.43 0.42888 $140,689.98
77 $341,162.04 0.39711 $135,478.86
78 $354,808.53 0.3677 $130,463.09
79 $369,000.87 0.34046 $125,630.03
80 $383,760.90 0.31524 $120,976.79
Total $2,394,892.34

The tables states the present values of their desired income until they become 80 years old.

Lastly, after the computation of the desired income and the present value of each, the
computation for the PMT monthly or the amount of money that the Halls should set aside each
month so as to have enough money accumulated in their retirement nest egg will be computed.
The computations are as follows:

FV= $2,394,420.36

Rate= .0067 (8% /12 months)

N= 420 ( 35yrs x 12 months)

PMT= ?

FV
PMT =
(1 + rate)n − 1
( )
rate
$2,394,892.34
PMT =
(1 + .0067)420 − 1
( )
. 0067
 $2,394,892.34
PMT =
15.52071415
( )
. 0067
$2,394,892.34
PMT =
2316.524499
PMT= $1,033.83

Above shows that the Halls should set aside the amount of $1,033.83 every month to have
enough money accumulated in their retirement nest egg.
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Keythman, B. (2019). How to Calculate Interest Rate Using Present & Future Value. The Nest.

http://researchkorner.blogspot.com/2013/12/wake-up-and-smell-coffee.html?detail=yes

U. (2019). Wake Up and Smell The Coffee. Research Korner.

http://researchkorner.blogspot.com/2013/12/wake-up-and-smell-coffee.html?detail=yes

Yield. (2017). Investopedia.

https://www.investopedia.com/terms/y/yield.asp#:%7E:text=Yield%20refers%20to%20th

e%20earnings,from%20holding%20a%20particular%20security.

Yield vs Interest Rate: What’s the Difference? (2018). Investopedia.

https://www.investopedia.com/ask/answers/09/difference-between-yields-and-interest-

rate.asp