Question

1. Isabella (25 yr. old) and Chris (35 yr. old) graduated from Tulane University and began working in the family business. The first year, Isabella began putting $3,000 per year in a registered retirement saving plan (RRSP) and contributed to it for a total of 10 years. After that time, she made no contributions until she retired at age 65. Chris did not start making contributions to his RRSP until he was 55, but he continued making contributions of $3,000 per year until he retired at age 65. Assuming that both Isabella and Chris receive 12% interest compounded annually per year, how much will Isabella have at retirement? How much did she contribute in total? How much will Chris have at retirement? How much did he contribute in total? [4 pts] (Show your calculations).

2. Jay & Jessica Haim have the following assets: Chequing account ($3,000), cash ($500), saving account ($2,500), home ($185,000), cars ($25,000), furniture ($20,000), and investments ($65,000); and the following liabilities: Mortgage ($93,000), car loan ($3,750), credit card balance ($10,000), student loans ($25,000), and furniture loan-6months ($4,500). What are their current liabilities? What are their long-term liabilities? What is their net worth? Jay and Jessica would like to trade in one of their cars, which has a fair market value of $8,000, for a new one with a fair market value of $34,000. The dealer will take their car and provide a $26,000 loan for the new car. If they make this deal, what will be the effect on their net worth? What is Jay and Jessica's current ratio? What is their debt-to-asset ratio? [6 pts] (Show your calculations)

Answer 1

1. The value of Isabella's contribution till 10 years can be found using the FV formula at the age of 35 = PMT*((1+r)^n -1)/r

= 3000* (1.12^10 - 1)/.12

= $ 52,646.21

No. Of years left till Isabella's retirement = 65- 35 years = 30 years

Amount of registered retirement savings plan that Isabella will receive at the age of 65 = Amount( 1+ r/100)^n = 52646.21* 1.12^30 = $1,577,276.35

Amount of Isabella's contribution towards the registered retirement savings plan = $3000*10 = $30,000

The value of Chris 's registered retirement fund till 10 years can be found using the FV formula at the age of 65 = PMT*((1+r)^n -1)/r

= 3000* ((1.12^10 - 1)/.12

= $ 52,646.21

Amount of Chris' contribution towards the registered retirement savings plan = $3000*10 = $30,000