John is planning to start savings for the initial capital to start a business right after...

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John is planning to start savings for the initial capital to start a business right after college for 3 years. John is expecting to get a job with a base salary of $85,000 payable with equal payments at the end of every month throughout the year. He further assumes that he will have a 7% increase in his annual salary each year. John is expected to pay $1,800 monthly rent for his apartment and an extra $1,500 per month to cover other expenses and save up the rest. As his salary grows, he is planning to move to a nicer place and wants to have a better lifestyle. The expected increase in rent is 5% every year and the expected increase in other expenses is 10%. He plans to keep this constant pattern of expenses and income. Assume a 5% nominal interest rate per year compounded monthly. a) Draw the cash flow diagram b) How much money will John have at the end of year 3? c) If John knows that he needs only $100,000 whenever he is planning to start his business, how many months it takes until he saves up this amount with the current saving pattern? Your answer should be "John should save for months". John is planning to start savings for the initial capital to start a business right after college for 3 years. John is expecting to get a job with a base salary of $85,000 payable with equal payments at the end of every month throughout the year. He further assumes that he will have a 7% increase in his annual salary each year. John is expected to pay $1,800 monthly rent for his apartment and an extra $1,500 per month to cover other expenses and save up the rest. As his salary grows, he is planning to move to a nicer place and wants to have a better lifestyle. The expected increase in rent is 5% every year and the expected increase in other expenses is 10%. He plans to keep this constant pattern of expenses and income. Assume a 5% nominal interest rate per year compounded monthly. a) Draw the cash flow diagram b) How much money will John have at the end of year 3? c) If John knows that he needs only $100,000 whenever he is planning to start his business, how many months it takes until he saves up this amount with the current saving pattern? Your answer should be "John should save for months".

Answer rating: 100% (QA)

a Cash Flow Diagram Year 1 Income 85000 Expenses 1800 rent 150... View the full answer