Timo started working as a craftsperson which will pay him $4,000 per month. He anticipates a...
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Timo started working as a craftsperson which will pay him $4,000 per month. He anticipates a 0.2% monthly increase in the paycheck. All of his savings are invested in ETF, which has an expected return of 8% p.a. Assume monthly compounding for the following questions. Required: (1) What is the effective annual rate (EAR) of the ETF? (5 marks) (2) His short-term goal is to have enough savings to pay $6,500 for a family vacation in 2 years. He set aside $5,000 in ETF today for this goal and did not make any additional contributions. How much will he have after 2 years in ETF? Would he be able to achieve his goal? (5 marks) (3) His parents decided to cover all the expenses for the family vacation, so Timo is going to enjoy a free vacation. Now, Timo instead wants to save money for the down payment of $50,000 for the downtown apartment in 5 years. He already has $5,000 in ETF, and he is also going to save 15% of his paycheck at the end of each month into ETF for the next 5 years. How much will he have after 5 years? Would he be able to achieve his goal? (5 marks) Timo started working as a craftsperson which will pay him $4,000 per month. He anticipates a 0.2% monthly increase in the paycheck. All of his savings are invested in ETF, which has an expected return of 8% p.a. Assume monthly compounding for the following questions. Required: (1) What is the effective annual rate (EAR) of the ETF? (5 marks) (2) His short-term goal is to have enough savings to pay $6,500 for a family vacation in 2 years. He set aside $5,000 in ETF today for this goal and did not make any additional contributions. How much will he have after 2 years in ETF? Would he be able to achieve his goal? (5 marks) (3) His parents decided to cover all the expenses for the family vacation, so Timo is going to enjoy a free vacation. Now, Timo instead wants to save money for the down payment of $50,000 for the downtown apartment in 5 years. He already has $5,000 in ETF, and he is also going to save 15% of his paycheck at the end of each month into ETF for the next 5 years. How much will he have after 5 years? Would he be able to achieve his goal? (5 marks)
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