GROUP ASSIGNMENT

Noted: i is your groups number

1) You are considering two job offers. In your opinion both jobs are equally interesting
with the same basic salary and job location. The difference is that job A offers a defined
benefit pension plan, and job B offers a defined contribution scheme. Defined benefit
pension plans promise to pay a stated monthly amount upon retirement. Defined
contribution pension plans state that you are to pay a specified amount into a pension
fund. The amount you actually receive upon retirement will depend upon the
performance of the fund. The details of two plans are as follows:
Defined benefit: You pay 125 a month in thirty years time. In return your
employer promises to pay 1,200 a month when you retire.
Defined contribution: Your employer matches your payment of 125 a month so
the total pension contribution is 250 per month in thirty years.
In any case you decide that you should plan for twenty years of retirement. You
expect that interest rates will be i% / year on average throughout your planning
horizon.
Based solely on monetary considerations, which pension plan is best?

2) Marty and Laura are a young couple which has accumulated quite a bit of college loans
over the year, but were making the minimum payments on time. As they are expanding
the family, they realized that they should probably start thinking more seriously about
their future and saving up some money towards their childs education as well as their
pension.
The table below presents a summary of their current financial information:
Marty and Lauras financial information
Martys salary $50,000
Lauras salary $25,000
Martys age 30
Lauras age 30
College Loans owed $12,000 @ i% / year
(24 payments remaining)
Monthly Rent $1,200
Income Tax rate 20%

Questions:
a. Based on the information provided in the table above, if Marta and Laura continue
making minimum monthly payments on their outstanding debt, how much money
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will they have left over for all their other expenses at the end of each month?
b. The current annual costs of a college education averages $10,000 and they increase by
about 10% every year. The college education is paid at the beginning of each year. How
much money will Laura and Marty have to deposit each month (beginning one month
after the child is born (assuming today) and ending on his/her 18th birthday) in order
to have enough saved up for their childs college education? Assume a yield on
investment is i% per year and that their child will enter college at the age of 18th and
complete the studies in 4 years.
c. Marty and Laura would also like to be able to buy a two-story, three bedrooms house
they have seen which is currently listed at $200,000. How much money will Laura and
Marty have to save monthly in order to have enough for a down payment (10% of the
house price) to purchase their dream house in 12 months? Assume transaction costs
of 2% of the loan value and a yield on investment is i% per year.

(adapted from Wake up and Smell the Coffee, De Mello, MCGraw-Hill)

3) The Block Concrete Company borrowed $20,000 at (i+1)% interest, compounded semi-
annually, to be paid off in one payment at the end of four years. At the end of the four
years, Block made a payment of $8,000 and refinanced the remaining balance at i%
interest, compounded monthly, to be paid at the end of two years. How much is the
amount Block owes at the end of the two years?

Bi 1:

K hoch cho hai mi nm ngh hu vi mc li sut trung bnh s l 2% /nm

trong sut k hoch. V mi thng bn s nhn c 1 khong tin trong mi chng
trnh tr cp ln lt l:

- Cng vic A: Defined Benefit Plan (Li ch xc nh)

PmtA= 1200

- Cng vic B: Difined Contribution Plan (ng gp xc nh)

Li sut: i= 2%/nm => i= %/thng =

S tin bn nhn c sau 30 nm (12*30=360 thng)l:
FV30nm = pmt* = 250*
S tin rt ra hng thng trong 20 nm na (12*20=240 thng) l:
PV20 nm= PmtB* =>PmtB= = = 623, 154

Ta c:
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PmtA PmtB (1200

Kt lun:
Chng trnh tr cp A TT hn chng trnh tr cp B.
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Bi 2:
a) Li sut: i= 2%/nm => i= %/thng =

Lng ca Marty : $50,000

Lng ca Laura: $25,000
Khon vay nh k tr hng thng:
PV = pmt* => pmt = = $ 510, 5
=

Thu thu nhp c nhn = 20% * ( 50.000 + 25.000) =$15.000/thng

Tin thu nh: $1.200/thng.
Tng chi ph vo cui mi thng :
T = khon vay hng thng + thu thu nhp c nhn+ tin thu nh
= 510, 5 + 15.000 + 1.200= $16710,5.

Kt lun: Tng chi ph vo cui mi thng l $16710,5

b) Chi ph 4 nm i hc:
+ Nm 1: $10.000
+ Nm 2: 10.000 +10.000*10% = $11.000
+ Nm 3: 11.000 +11.000*10% = $12.100
+ Nm 4: 12.100 +12.100*10% = $13.310
Vy Tng chi ph trong 4 nm i hc
T = 10.000+11.000+12.100+13.310 = $46.410
Ta c:
FV= pmt * => pmt = = $179,668
=

Kt lun: Laura v Marty phi tr mi thng l $179,668

c) Gi nim yt ngi nh: $200.000
Tin t cc (10% gi nh): $20.000
Khon phi vay: $180.000
Chi ph giao dch (2% khon vay) : $3.600
Ta c: FV= pmt * => pmt = = $14.863
=

Kt lun: Laura v Marty phi tit kim hng thng trong vng 1 nm
l $14.863 mua c cn nh trong m.
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Bi 3:
Ta c: + Vay: $20.000
+ Li sut: 3%/nm, nh k tr li 6 thng => i=1.5%= 0.015/6 thng
+ Tr trong vng 4 nm=> n=8
=>> S tin phi tr trong vng 4 nm:
FV= PV* = 20.000* = $22.529,85173
Tr trc $8.000:
S d= 22.529,85173 8.000 = $14.529,85173
Vi s d $14.529,85173:
+ Li sut i=2%/nm=> i= %/thng =
+ Cng dn hng thng trong vng 2 nm=> n= 24 thng
=>> S tin phi tr =14.529,85173 *
Kt lun: S tin cng ty ny phi tr trong 2 nm l