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##### FIN 115 Problem Set 5, 6 and 7

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Question;Problem Set 51. Tammy Monahan is considering the purchase of a home entertainment center. Theproduct attributes and weights she plans to consider are:portability.1sound projection.6warranty.3Tammy rated the brands as follows:Brand ABrand BBrand Cportability695sound projection869warranty786Using the Consumer Buying Matrix presented in Chapter 8, conduct a quantitativeproduct evaluation rating for each brand. What other factors is Tammy likely toconsider when making her purchase?2. Based on the following, calculate the costs of buying and of leasing a motor vehicle.Purchase CostsDown payment$1,500Loan payment$450 for 48 monthsEstimated value atEnd of loan$4,000Opportunity cost interest rate: 4 percentLeasing CostsSecurity deposit$500Lease payment$450 for 36 monthsEnd of lease charges$6003. You can purchase a service contract for all of your major appliances for $180 a year. Ifthe appliances are expected to last for 10 years, and you earn 5 percent on your savings,what would be the future value of the amount you would pay for the service contract?4. You estimate that you can save $3,800 by selling your own home rather than using a realestate agent. What would be the future value of that amount if invested for five years at 7percent?5. John Walters is comparing the cost of credit to the cash price of an item. If John makes a$60 down payment, and pays $34 a month for 24 months, how much more would that bethan the cash price of $695?******************************************Problem Set 61. For each of the following situations, what amount would the insurance companypay?a. Wind damage of $835, the insured has $500 deductible.b. Theft of a stereo system worth $1,300, the insured has a $250 deductible.c. Vandalism that does $425 of damage to a home, the insured has a $500deductible.2. Beverly and Kyle Nelson currently insure their cars with separate companiespaying $650 and $575 a year. If they insure both cars with the same company,they would save 10 percent on the annual premiums. What would be the futurevalue of the annual savings over ten years based on an annual interest rate of 6percent?3. As of 2008, per capita spending on health care in the United States was about $8,000. Ifthis amount increased by 5 percent a year, what would be the amount of per capitalspending for health care in 10 years?4. Sarahs comprehensive major medical health insurance plan at work has adeductible of $750. The policy pays 85 percent of any amount above the deductible.While on a hiking trip, she contracted a rare bacterial disease. Her medical costs fortreatment, including medicines, tests, and a six-day hospital stay, totaled $8,893. Afriend told her that she would have paid less if she had a policy with a stop-loss featurethat capped her out-of-pocket expenses at $3,000. Was her friend correct? Show yourcomputations. Then determine which policy would have cost Sarah less and by howmuch.5. The Kelleher family has health insurance coverage that pays 80 percent of out-ofhospital expenses after a $500 deductible per person. If one family member has doctorand prescription medication expenses of $1,100, what amount would the insurancecompany pay?6. You are the wage earner in a typical family, with $40,000 gross annual income.Use the easy method to determine how much life insurance you should carry.**************************************************Problem Set 71. Calculating Net Asset Value. Given the information below, calculate the net asset valuefor the Boston Equity mutual fund.Total assetsTotal liabilitiesTotal number of shares$225,000,0005,000,0004,400,0002. Calculating the Rate of Return of Investment Using Financial Leverage. Suppose Shaaninvested just $10,000 of his own money and had a $90,000 mortgage with an interestrate of 8.5 percent. If after three years he sold the property for $120,000.a. What is his gross profit?b. What is his net profit/loss?c. What is the rate of return on investment?3. Shellys assets include money in the checking and savings accounts, investments instocks and mutual funds, personal property, such as furniture, appliances, an automobile,coin collection and jewelry. Shelly calculates that her total assets are $108,800. Her currentunpaid bills, including an auto loan, credit card balances, and taxes total $16,300. CalculateShellys net worth.4. Barry and his wife Mary have accumulated over $4 million during their 45 years ofmarriage. They have three children and five grandchildren.A- How much money can Barry and Mary gift to their children in 2008 without any gift taxliability?B- How much money can Barry and Mary gift to their grandchildren?C- What is the total amount of estate removed from Barry and Marys estate?5. Dave bought a rental property for $200,000 cash. One year later, he sold it for $240,000.A- What was the return on his $200,000 investment?B- Suppose Dave invested only $20,000 of his own money and borrowed $180,000 (interestfree from his rich father). What was his return on investment?

Paper#48098 | Written in 18-Jul-2015

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