Section $1$: Problem Statement

John Smith graduated $5$ years ago, with a Business degree

and an emphasis in Finance. John is currently employed as

a Sr$.$ Financial Analyst in the Corporate Finance

department of a multinational corporation. He has

progressed well in his career, with the ultimate goal of

becoming the company's CFO. John's current salary of

$$78,000$ has increased at an average rate of $5\%$ per year,

with routine merit raises, and he expects to continue doing

so$.$

John's firm, ABC Corporation, has a defined contribution

plan $(401$ k $)$ plan in place. Employees are allowed to

contribute up to $10\%$ of their gross annual salary $($up to a

maximum of $$10,000$ per year$)$ and the firm will match

$50\%$ of the employee's contribution. Unfortunately, John

has not yet taken Professor Money Man's advice to "Save,

Start Young, and Pay Yourself First." Instead, John has

enjoyed his post$-$college, nice$-$salary life by leasing a new

car, renting an apartment and going out to Player's every

weekend. Now that he has wedding plans on the horizon,

John has come to the realization $($with help from his

fianc$$e$,$ Jane Doe$)$ that it's time to start saving $-$ while he's

still young!

John expects that the lovebirds' two largest future expenses

will be the cost of a wedding $($short$-$term$),$ then later the

down payment on a house $($medium$-$term$).$ The couple

plans to spend $$10,000$ of their own money on the wedding

in twelve months. They also hope to purchase a $$400,000$

house in $5$ years. Jane's parents have promised to match

their $10\%$ down payment, but only if they manage to save it

within $5$ years. Talk about motivation to save! Both future

spouses agree that John will automate his savings by setting

up monthly contributions to his $401$ k $,$ wedding and house

accounts. Section $2$: Calculations Needed

Your assignment should begin with a "Data" section,

documenting all of the numerical assumptions provided

in both sections of this assignment.

Your calculations will require the use of a spreadsheet

and a financial calculator. Please provide your detailed

calculations, step$-$by$-$step, including calculator

functions, in order to receive maximum credit.

Remember to put your name and date on your

assignment submission!

If John Smith had fully taken advantage of his

employer's $401$ k plan and company match, what would be

his current $401$ k balance based on his historical $($last five

years$)$ salary and contributions? Assume that John made

the maximum contribution every year, with a $6\%$ annual

return compounded annually. Second part, what would be

his current $401$ k balance, had he taken more risk and

achieved an annual return of $10\%?$

You can't change the past. John will save better in the

future. Assuming he starts in January of next year $($at age

$28)$ and contributes the maximum to his $401$ k $,$ what will be

his account balance at age $70(42$ years later$)?$ Second part,

what if John decides to retire early at age $60(32$ years later$)$

what will be his account balance? For both calculations,

assume an annual rate of return of $8\%,$ compounded

annually. John's fianc$$e$,$ Jane Doe, is adamant about getting

married in the next year. She is insisting that John makes

saving towards the $$10,000$ needed a top priority. John

recalls that Professor Money Man says "not to invest in

long$-$term investments with short$-$term money." Therefore,

he plans to keep the wedding account in the bank and buy

short$-$term $($under $1$ year maturity$)$ CD$\text{'}$s$.$ Assuming John

stays continuously invested in CD$\text{'}$s yielding $2\%$ annual

yield for the duration of each monthly deposit from the

beginning month $($Month $0),$ how much will he have to

contribute to the wedding fund every month for the next $12$

months?

Jane does acknowledge that saving for a home down

payment is not as big of a priority. But both future spouses

agree that they should start putting money away towards

the goal of $$40,000$ within five years. John recalls that a

medium$-$term investing plan should not take as much risk,

so he will plan to earn $4\%$ annually with a conservative

strategy for their house fund. How much money will he

have to save every month for the next $60$ months?

Dreaming of early retirement at age $60,$ how much could

John start withdrawing from his $401$ k per month, if

planning for a life expectancy of $85$ years? Assume a more

moderate rate of return of $6\%$ annually, compounded

annually, during his retirement years.