Reference no: EM132728513

Problem - Max is going to save his money to buy his dream car. The car costs $300,000 now. Its price will increase 3% per year. Max receives a yearly salary of $95,000 and has annual expenses of $40,000. These expenses are expected to grow 5% each year. After 5 years of working, he expects to get a considerable raise in salary, increasing his salary to $150,000 per year. He plans to keep his expense pattern constant (growing at 5% per year) Max is able to make investments with his surplus at a 10% rate of return compounded annually.

a) What would be Max's total saved money at the time just prior to him getting his raise? (at the end of year 5).

b) How much does the car cost at the time Max is getting the raise in salary? (assume this is right BEFORE he gets the new $150,000 salary) Would he be able to buy the car?

c) When would Max be able to buy his car? Your answer should be "At the end of year".