Patrick's monthly take-home pay is $5,000. His net worth is $125,000. He estimated that he would receive monthly Social Security benefits worth $1,000 and monthly company disability benefits $2,000 if he becomes disabled. The additional disability benefits that he needs to arrange for equals about O a. $7,000 O b. $2,000 O c. $6,000 O d. $5,000 Oe$3.000

Patrick's monthly take-home pay is $5,000. His net worth is $125,000. He estimated that he would receive monthly Social Security benefits worth $1,000 and monthly company disability benefits $2,000 if he becomes disabled. The additional disability benefits that he needs to arrange for equals about O a. $7,000 O b. $2,000 O c. $6,000 O d. $5,000 Oe$3.000

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Suppose that Thomas Lee is enrolled in a defined contribution plan in which the employer contributes $8,000 each year. Thomas is earning $80,000 this year and his tax rate is 30 percent (which is not expected to change). Assume that the before- tax rate of return is 8 percent. (a) What is the additional amount of funds that Thomas will have when he reaches retirement in 10 years as a result of this year's service? (b) Suppose that Thomas's employer is planning to reduce half of their contribution to the defined contribution plan. Assume that Thomas would like to keep his retirement funds the same as they would have been with the defined contribution plan. If Thomas's only opportunity to save for retirement is in a nonqualified savings plan (no tax benefits), how much would Thomas need to receive in additional salary (which he would then save) to achieve his objective?
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