Project MBA Business Environment
Bob and Carol are planning for the birth of their first child exactly four years from today. They are now ready to start their savings plan for the big event. The current hospital cost for having a healthy baby at the local hospital is $6500 after all insurance payments. Pre-natal care for the immediate 12-month period prior to having the baby amounts to $2000 in out-of-pocket costs. Carol's best friend is planning a baby shower, so only a crib, a baby carrier, and other miscellaneous items will be needed, which all cost $1,200 today. However, these items will be purchased and paid for on the day of the child’s birth, and the items are expected to increase in costs by 10% each year over the next four years due to inflation.
Bob and Carol now have $500 in cash that they plan to put in the bank in order to cover all the new costs. Also, Uncle Ted has promised to contribute $1000 at the end of year two, as a present to Bob and Carol for baby expenses.
Currently, Bob and Carol can earn 6% compounded annually on this money. In order to be able to pay cash for all these expenses on the day the baby is born, how much will Bob and Carol have to save, assuming the baby is born exactly four years from today
Questions:
Draw the timeline that illustrates the timing of all the events of the situation described above.
How much will Bob and Carol need to have in the bank on the day the baby is born in order to achieve all their goals?
What amount needs to be saved at the end of each year in order for Bob and Carol to reach their financial goals?
Sample Solution
Timeline: Year 0 | Bob and Carol start savings plan, $500 in cash deposited into bank Year 1 | Pre-natal care for the 12-month period prior to birth, $2000 out of pocket costs Year 2 | Uncle Ted contributes $1000 present for baby expenses Year 3+ | Inflation increases costs of crib, baby carrier and other miscellaneous items each year by 10% Year 4| Baby is born; hospital cost is $6500 after all insurance payments Answer: Bob and Carol need to have a total of $9063.32 in the bank on the day the baby is born in order to achieve all their goals. This amount includes the initial deposit of $500, Uncle Ted's contribution at the end of year two ($1000), plus any accrued interest. To reach this goal amount they will need to save an additional annual amount of approximately $1562.55 at the end of each year over a four-year period (before any accrued interest).
eager observers to argue that Dilma would rule a country split in two,” (Bastos, 148). Since the 2008 housing market crash, income inequality, the 99% versus 1% argument such as the Occupy Wall Street movement, have caused rifts in the United States trust in governmental regulations. Moreover, congressional gridlock between Democrats and Republicans has only increased the social tension void. Now, the country has been faced with countless protests denouncing Donald J. Trump’s presidential legitimacy, especially through the Twitter #NotMyPresident movement. As reported by Christopher Mele and Annie Correal of The New York Times on November 9, 2016, “thousands of people across the country marched, shut down highways, burned effigies and shouted angry slogans…to protest the election of Donald J. Trump as president,” while more demonstrations resonated in town squares and college campuses around the nation. Even more strikingly, Fabrício Bastos proclaims that in Brazil the “urban middle-class youth (most of them around 25 to 34 years old),” (Bastos, 153) is disenchanted with the current government and will continue to be the source of political protest in the coming years, similar to what is being demonstrated by U.S. middle-class youth. As the United States continues to wait in solemn observation of presidential cabinet nominees, and the first policies to be announced under the Trump administration, we may well see presidential impeachment ourselves.
With these events in mind, it is time to consider the short-term consequences of transitioning from a winner-take-all system to a proportional representation system in the United States of America. To begin, it would create a more diverse Congress with smaller parties such as the Tea Party and the Green Party earning a seat at the congressional table. While they may finally be in prominent public office, the chances that they would hold any real power are slim to none as the Democrats and Republicans would continue to remain dominant. Also, politicians would have more incentives to campaign across their whole state