Jason Is a Stockbroker Who Is on Variable Compensation

question 6

Essay

Jason is a stockbroker who is on variable compensation. In good years he receives a healthy bonus that might double or even triple his base salary. During these times he is accustomed to a lavish lifestyle, driving expensive cars and taking exotic vacations. He knows it is important to save for retirement but he makes RRSP contributions only in years in which he receives good bonus cheques. In poor years he will receive only a base salary. During these poor years he finds himself scrambling to pay off debts and meet monthly expenses. He always seems to have more unexpected expenses during these times, too. He always has at least $1000 cash in his wallet and tries to avoid the use of credit cards as much as possible. Jason is funding all short-term goals with current earnings and hasn't set any mid- or long-term goals. He is frustrated by his wildly fluctuating income and his constant concern about his potential earnings at the beginning of each year. How can you assist Jason?

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Definitions:

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan's balance.

Loan Agreement

A formal contract between a borrower and a lender outlining the terms and conditions of the loan, including interest rates and repayment schedule.