Reference no: EM132487596

Point 1: Emily Smith just received a promotion at work that increased her annual salary to $42,000. She is eligible to participate in her employer's 401(k) retirement plan to which the employer matches, dollar for dollar, workers' contributions up to 5% of salary. However, Emily wants to buy a new $25,000 car in 3 years, and she wants to have enough money to make a $10,000 down payment on the car and finance the balance. Fortunately, she expects a sizable bonus this year that she hopes will cover that down payment in 3 years. A wedding is also in her plans. Emily and her boyfriend, Paul, have set a wedding date two years in the future, after he finishes medical school. In addition, Emily and Paul want to buy a home of their own in 5 years. This might be possible because two years later, Emily will be eligible to access a trust fund left to her as an inheritance by her late grandfather. Her trust fund has $80,000 invested at an interest rate of 5%.

Question 1: Calculate the amount of money that Emily needs to set aside from her bonus this year to cover the down payment on a new car, assuming she can earn 4% on her savings. What if she could earn 10% on her savings?