Question

3.

Your gross income is $4,520.00/month. Your deductions are FICA (7.65%), federal tax withholding (11.75%), and state tax withholding (8.5%). Your fixed expenses are 30% of your realized income. You saved 5 months' worth in an emergency fund, placing 75% in a 60-day CD at a 5.25% APR and the rest in a regular savings account at a 3.8% APR. What is the total amount of your emergency fund?

$4,888.40

$6,516.91

$4,520.00

$6,107.33

Answer 1

(a) $4,888.40

Explanation:

Your deductions total ...

7.65% +11.75% +8.5% = 27.9%

of your gross income. That means your realized income is ...

$4,520.00 × (1 -0.279) = $3258.92

Your monthly expenses are 30% of this amount, and your savings is 5 times your expenses. Your total savings is ...

$3258.92 × 0.30 × 5 = $4888.38 . . . . . matches choice A