Question

Elliot makes $250,000 a year and pays 30% taxes on $150,000 and 35% on his remaining salary. His expenses are $110,000 (per year). He wants to invest a fixed amount EVERY day into an investment fund for 5 years and he hopes to get a 12% return.

What is the maximum amount he can invest every day? (Find the annual investment amount and divide by 365).

What will be the worth of his portfolio after 5 years?

After 5 years, Kassidy’s income increases to $300,000. He wants to reinvest for another 5 year, but this time, his return will be 10% and his expenses have increased by 15%. What will be the worth of his portfolio after 5 years (total of 10 years)?

What will the Present Value of his portfolio, assuming a 6% discount rate and NPER is 10 years?

Answer 1

Income after tax = 150,000 x (1 - 30%) + 100,000 x (1 - 35%) = 170,000

Annual Savings = 170,000 - 110,000 = 60,000

Max investment per day = 60,000 / 365 = $164.4

Future Value can be calculated using FV function

N = 5 x 365, I/Y = 12%/365, PV = 0, PMT = 164.4 => Compute FV = $411,010.66

After 5 years, Income after tax = 150,000 x (1 - 30%) + 150,000 x (1 - 35%) = 202,500

Annual Savings = 202,500 - 110,000 x (1 + 15%) = 76,000

Max investment per day = 76,000 / 365 = $208.2

N = 5 x 365, I/Y = 10% / 365, PMT = 208.2, PV = $1,170.492.58

Present Value of the portfolio = FV / (1 + r)^n = 1,170,492.58 / (1 + 6%)^10 = $653,596.94