Beruflich Dokumente
Kultur Dokumente
Submitted by:
GROUP 5
Abellar, Rexanne Mae
Ejertima, Mayfair
Hilado, Karen
Jusayan, Romeo Jr.
Rivera, Aldren
Sibug, James Frederick Rudolph
Submitted to:
Dr. Felix Cena, CPA
𝐹𝑢𝑡𝑢𝑟𝑒 𝑉𝑎𝑙𝑢𝑒
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 =
(1 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒)𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑃𝑒𝑟𝑖𝑜𝑑𝑠
$ 70,000
𝑃𝑟𝑒𝑠𝑒𝑛𝑡 𝑉𝑎𝑙𝑢𝑒 = = $ 𝟓𝟒, 𝟖𝟒𝟔. 𝟖𝟑
(1 + 5%)5
FV I N PV Voluntary Savings
Current Salary Growth Rate Year Previous Years’ Salary Contribution
1 54,846.83 6,033.15
2 57,589.17 6,334.81
70,000 5% 3 60,468.63 6,651.55
4 63,492.06 6,984.13
5 66,666.67 7,333.33
Ryan’s starting salary was $54,846.83 however, if he maximized the voluntary savings
contribution with 11% increase which is $6,033.15 in the first year, and if he started the
voluntary savings contribution 5 yrs ago, he would have a total of $33,336.77
2. Had Ryan taken advantage of the company’s voluntary retirement plan up to the
maximum, every year for the past five years, how much money would he currently have
accumulated in his retirement account, assuming a nominal rate of return of 7%? How
much more would his investment value have been worth had he opted for a higher risk
alternative (i.e. 100% in common stocks), which was expected to yield an average
compound rate of return of 12% (A.P.R.)?
3. If Ryan starts his retirement savings plan from January of next year by contributing the
maximum allowable amount into the firm’s voluntary retirement savings program, how
much money will he have accumulated for retirement, assuming he retires at age 65?
Assume that the rate of return on the account is 7% per year, compounded monthly and
that the maximum allowable contribution does not change.
Retirement Age 65
Current Age 27
# of Years for Investment 38
# of Periods in One Year 12
Total # of Payments 456
(1 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒)𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑃𝑒𝑟𝑖𝑜𝑑𝑠 − 1
𝐹𝑉 𝐹𝑎𝑐𝑡𝑜𝑟𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝐴𝑛𝑛𝑢𝑖𝑡𝑦 =
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒
(1 + (7%/12))38𝑥12 − 1
𝐹𝑉 𝐹𝑎𝑐𝑡𝑜𝑟𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝐴𝑛𝑛𝑢𝑖𝑡𝑦 = = 𝟐, 𝟐𝟔𝟎. 𝟒𝟗𝟔𝟒
7%/12
Before Ryan will reach his retirement age at 65 yrs, he still have remaining 38 yrs to
invest with monthly contribution of $1,000 in order to accumulate retirement savings at
$2,260,496.40.
.
4. How much would Ryan have to save each month, starting from the end of the next
month, in order to accumulate enough money for his wedding expenses, assuming that
his investment fund is expected to yield a rate of return of 7% per year?
The wedding cost, at Present Value is at $15,000 however, with the Future Value of
wedding cost is expected to increase at $16,050 due to inflation rate at 7%. Ryan needs to
target monthly savings of $1,295.13 in order to pay off the wedding cost at present value
of $15,000.
5. If Ryan starts saving immediately for the 20% down payment on his house, how much
additional money will he have to save each month? Assume an investment rate of return
of 7% per year.
𝐹𝑉 𝐹𝑎𝑐𝑡𝑜𝑟𝐴𝑛𝑛𝑢𝑖𝑡𝑦 𝐷𝑢𝑒
(1 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒)𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓𝑃𝑒𝑟𝑖𝑜𝑑𝑠 − 1
= ( ) 𝑥 (1 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒)
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒
(1 + (7%/12))5𝑥12 − 1
𝐹𝑉 𝐹𝑎𝑐𝑡𝑜𝑟𝐴𝑛𝑛𝑢𝑖𝑡𝑦 𝐷𝑢𝑒 = ( ) 𝑥 (1 + (7%/12)) = 𝟕𝟐. 𝟎𝟏𝟎𝟓
7%/12
Cost of New House 250,000.00
x Down Payment Rate 20%
Down Payment, at Present Value 50,000.00
x FV Factor 1.4026
Down Payment, at Future Value 70,127.59
÷ FV Factor, annuity due 72.0105
Down Payment, Target Monthly Savings $ 973.85
Ryan needs to have a target monthly savings of $973.85 in order for him to pay-off the
$250,000 cost of house in 5 yrs time.
6. If Ryan wants to have a million dollars (in terms of today’s dollars) when he retires at age
65, how much should he save in equal monthly deposits form the end of the next month?
Ignore the cost of the wedding and the down payment on the house. Assume his savings
earn a rate of 7% per year (A.P.R.).
Retirement Age 65
Current Age 27
# of Years for Investment 38
# of Periods in One Year 12
Total # of Payments 456
Ryan needs to save $5,786.02 per month to achieve having a million dollars (in terms of
the current value) when he retires at the age of 65. However, considering that his current
salary is at $70,000, his monthly salary is only at $5,833.33, reality wise, Ryan would
have a difficult time attaining to save $5,786.02 per month for the first 10 years.
Otherwise, if Ryan has other source of income, this can be attained.
7. If Ryan saves up to the million dollars (in terms of today’s dollars) by the time of his
retirement at age 65, how much can he withdraw each month (beginning one month after
his retirement) in equal dollar amounts, if he figures he will live up to the age of 85
years? Assume that his investment fund yields a nominal rate of return of 7% per year.
Estimated Life Span 85
Retirement Age 65
Number of Years 20
# of Periods in One Year 12
Total # of Payments 240
1
1−
(1 + 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒)𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑃𝑒𝑟𝑖𝑜𝑑𝑠
𝑃𝑉 𝐹𝑎𝑐𝑡𝑜𝑟𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝐴𝑛𝑛𝑢𝑖𝑡𝑦 =
𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑅𝑎𝑡𝑒
1
1−
(1 + (7%/12))20𝑥12
𝑃𝑉 𝐹𝑎𝑐𝑡𝑜𝑟𝑂𝑟𝑑𝑖𝑛𝑎𝑟𝑦 𝐴𝑛𝑛𝑢𝑖𝑡𝑦 = = 𝟏𝟐𝟖. 𝟗𝟖𝟐𝟓
(7%/12)
Ryan will have the capacity to withdraw $101,403.45 per month by the time after he
retires. We can take note that in support to the growth of inflation, the allowable amount
to withdraw by Ryan can suffice the expenses he will have in the future.
8. After preparing a detailed budget, Ryan estimates that the maximum he will be able to
save for retirement is $300 per month, for the first five years. After that he is confident
that he will be able to increase the monthly saving of $500 per month until retirement. If
the account provides a nominal annual return of 7%, how much money will Ryan be able
to withdraw per month during his retirement phase?
If Ryan starts to save $300 for 5 years and increase it to $500 from year 6 until the day he
retires (year 38) at 7% nominal annual return, he’d be able to have an annual accumulated
savings of $1,115,929.62. From this, his monthly financial need is secured as he will be
able to withdraw $8,651.79 from the day he retires at age 65 until he ages 85.
We live in this world where change is constant. From the aspect of technology, business
and even nature, these things have evolved throughout the millennia. People have become
more civilized than before. These current events have left us nothing but to adapt.
Relative to the changes occurring over the period, so as the value of money changes too.
One of the lessons from this case that we have incorporated is the importance of
investments and savings. Moreover, the concept of inflation affecting the society’s
economy is one of the factors to consider. Inflation has increased drastically worldwide.
It has been affecting the worth goods and services we buy. Thus, our buying behavior
also changes. Furthermore, research shows the increasing percentage of poverty. One of
the major causes that these studies always point out, it is the effect of inflation rate.