# solution

Discussion Case

Jinhee Ju, 27, just received a promotion at work that increased her annual salary to \$37,000. She is eligible to participate in her employer&#39;s 401 (k) plan to which the employer matches dollar-for-dollar workers&#39; contributions up to 5 percent of salary. However, Jinhee wants to buy a new \$25,000 car In 3 years and she wants to save enough money to make a \$7,000 down payment on the car and finance the balance.
Also in her plans is a wedding. Jinhee and her boyfriend, Paul, have set a wedding date 2 years in the future, after he finishes medical school. Paul will have \$100,000 of student loans to repay after graduation. But both Jinhee and Paul want to buy a home of their own as soon as possible. This might be possible because at age 30, Jinhee will be eligible to access a \$50,000 trust fund left to her as an inheritance by her late grandfather. Her trust fund is invested in 7 percent government bonds.

Questions

1. Justify Jinhee&#39;s participation in her employer&#39;s 401 (k) plan using the time value of money concepts.

2. Calculate the amount that Jinhee needs to save each year for the down payment on a new car, assuming she can earn 6 percent on her savings. Calculate how much she will need to save on a monthly basis assuming monthly compounding. For each scenario, how much of her down payment will come from interest earned?

3. What will be the value of Jinhee&#39;s trust fund at age 60, assuming she takes possession of half of the money at age 30 for a house down payment, and leaves the other half of the money untouched where it is currently invested?

4. What is Paul&#39;s annual payment if he wants to repay his student loans completely within 10 years and he pays a 5 percent interest rate? How much more or less would Paul pay if the loans compounded interest on a monthly basis and Paul also paid the loans on a monthly basis?

5. List at least three actions thatJinhee and Paul could take to make the time value of money work in their favor.

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