Critical Thinking Skills Assignment
(1) Evaluation skill: Evaluation is associated with the ability to judge the value of material for a
given purpose. The judgements are to be based on definite criteria. These criteria may be
determined by relevance, purpose, statements, and numerical values or calculations. Please
watch the video clips provided on Evaluating Logic Part 1,2 and 3
Read the following vignette carefully and answer questions using the evaluation skill.
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%.
1. Justify Emily’s participation in her employer’s 401(k) plan using the time value of
money concepts by calculating the actual annual return on her own contributions.
She will contribute $1,000 per year to her 401(k) for 25 years and the employer will
match dollar for dollar. Assume that her 401(k) earns 6% per year for 25 years and
all contributions are made at the end of each year.
After 25 years, she will get: FV = PMT x ((1+𝑖)𝑛−1
𝑖)
FV = 1000 x ((1+6%)25−1
6% ) = $54,864.5
Actual annual return: $54,864.5
25 = $2,194
2. 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?
Down payment: $10,000
Interest saving: 4%
Period: 3 years
FV = PMT x ((1+𝑖)𝑛−1
𝑖)
$10000 = PMT x ((1+4%)3−1
4% ) => PMT = $3,203
➔ She need to set aside $3,203/ year
IF the interest is 10% on her saving, she needs to set aside $3,021
3. What will be the value of Emily’s trust fund in 36 years, assuming she takes
possession of $20,000 in 2 years for her wedding, and leaves the remaining amount
of money untouched where it is currently invested?
The amount of money remained after her wedding is $60,000,
➔ After 36 years, the value = FV = PV x (1 + i) n
FV = $60,000 x (1 + 5%) 36 = $347,508
4. Suggest at least two conditions that Emily and Paul could take to accumulate more
for their retirement.
