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Personal Financial Planning Assignments

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Question;Problem Set 1(Note: Some of these problems require the use of the time value of money tables in the Chapter 1 Appendix).1. Ben Collins plans to buy a house for $65,000. If that real estate property is expected to increase in value 5 percent each year, what would its approximate value be seven years from now?2. At an annual interest rate of five percent, how long would it take for your savings to double?3. In the mid-1990s, selected automobiles had an average cost of $12,000. The average cost of those same motor vehicles is now $20,000. What was the rate of increase for this item between the two time periods?4. A family spends $28,000 a year for living expenses. If prices increase by 4 percent a year for the next three years, what amount will the family need for its living expenses?5. What would be the yearly earnings for a person with $6,000 in savings at an annual interest rate of 5.5 percent?6. Elaine Romberg prepares her own income tax return each year. A tax prepare would charge her $60 for this service. Over a period of 10 years, how much does Elaine gain from preparing her own tax return? Assumes she can earn 3 percent on her savings.7. Tran Lee plans to set aside $1,800 a year for the next six years, earning 4 percent. What would be the future value of this savings amount?8. If you borrow $8,000 with a 5 percent interest rate to be repaid in five equal payments at the end of the next five years, what would be the amount of each payment? (Note: Use the present value of an annuity table in the Chapter 1 Appendix.)9. Based on the following data, compute the total assets, total liabilities, and net worth.Liquid assets, $3,670Household assets, $89,890Investment assets, $8,340Long-term liabilities, $76,230Current liabilities, $2,67010. Which of the following employee benefits has the greater value? Use the formula given in the ?Financial Planning Calculations? ? ?Tax-Equivalent Employee Benefits? box found in Chapter 2 to compare these benefits. (Assume a 28 percent tax rate.)A nontaxable pension contribution of $4,300 or the use of a company car with a taxable value of $6,325.__________________________________________________Problem Set 21. Thomas Franklin arrived at the following tax information:Gross salary, $46,660Interest earnings, $225Dividend income, $80One personal exemption, $3,400Itemized deductions, $7,820Adjustments to income, $1,150What amount would Thomas report as taxable income?2. What would be the net annual cost of the following checking account?Monthly fee, $3.75, processing fee, 25 cents per check, checks written, an average of 22 a month.3. What would be the average tax rate for a person who paid taxes of $4,864.14 on a taxable income of $39,870?4. A payday loan company charges 4 percent interest for a two-week period. What would be the annual interest rate from that company?5. What is the annual opportunity cost of a checking account that requires a $350 minimum balance to avoid service charges? Assume an interest rate of 6.5 percent.___________________________________________________________Problem Set 31. Louise McIntyre?s monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month for her IRA. Her monthly credit payments for VISA, MasterCard, and Discover card are $35, $30, and $20,respectively. Her monthly payment on an automobile loan is $285. What is Louise?s debt payments-to-income ratio? Is Louise living within her means?2. Calculating Debt Payments ? to - Income Ratio. Suppose that your monthly net income is $2,400. Your monthly debt payments include your student loan payment, a gas credit card and they total $360. What is your debt payments ? to ? income ratio?3. Dave borrowed $500 for one year and paid $50 in interest. The bank charged him a $5 service charge.A- What is the finance charge on this loan?B- Dave borrowed $500 on January 1, 2006, and paid it all back at once on December 31, 2006. What was the APR?C- If Dave paid the $500 in 12 equal monthly payments, what is the APR?4. Calculating Simple Interest on a Loan. Damon convinced his aunt to lend him $2,000 to purchase a plasma digital TV. She has agreed to charge only 6 % simple interest, and he has agreed to repay the loan at the end of one year. How much interest will he pay for the year?5. After visiting several automobile dealerships, Richard Welch selects the car he wants. He likes its $10,000 price, but financing through the dealer is no bargain.He has $2,000 cash for a down payment, so he needs an $8,000 loan. In shopping at several banks for an installment loan, he learns that interest on most automobile loans is quoted at add-on rates. That is, during the life of the loan, interest is paid on the full amount borrowed even though a portion of theprincipal has been paid back. Richard borrows $8,000 for a period of four yearsat an add-on interest rate of 11 percent.QuestionsWhat is the total interest on Richard?s loan?What is the total cost of the car?What is the monthly payment?What is the annual percentage rate (APR)?___________________________________________________Problem Set 41. Determining Profit or Loss from an Investment. Three years ago, you purchased 150 shares of IBM stock for $88 a share. Today, you sold your IBM stock for $103 a share. For this problem, ignore commissions that would be charged to buy and sell your IBM shares.a. What is the amount of profit you earned on each share of IBM stock?b. What is the total amount of profit for your IBM investment?2. Calculating Rate of Return. Assume that at the beginning of the year, you purchase an investment for$8,000 that pays $100 annual income. Also assume the investment?s value has decreased to $7,400 by the end of the year.5.a. What is the rate of return for this investment?b. Is the rate of return a positive or negative number?3. Calculating Earnings Per Share, Price-Earnings Ratio, and Book Value. As a stockholder in Bozo Oil Company, you receive its annual report. In the financial statements, the firm has reported assets of $9 million, liabilities of $5 million, after-tax earnings of $2 million, and 750,000 outstanding shares of common stock.a. Calculate the earnings per share of Bozo Oil?s common stock.b. Assuming that a share of Bozo Oil?s common stock has a market value of $40, what is the firm?s price-earnings ratio?c. Calculate the book value of a share of Bozo Oil?s common stock.4. Determining Interest and Approximate Bond Value. Assume that three years ago, you purchased a corporate bond that pays 9.5 percent. The purchase price was $1,000. Also assume that three years after your bond investment, comparable bonds are paying 8 percent.a. What is the annual dollar amount of interest that you will receive from your bond investment?b. Assuming that comparable bonds are paying 8 percent, what is the approximate dollar price for which you could sell your bond?c. In your own words, explain why your bond increased or decreased in value.5. Using Margin. Bill Campbell invested $4,000 and borrowed $4,000 to purchase shares in Wal-Mart. At the time of investment, Wal-Mart was selling for $45 a share.a. If Bill paid $30 commission, how many shares could Bill buy if he used only his own money and did not use margin?b. If Bill paid $50 commission, how many shares could Bill buy if he used his $4,000 and borrowed $4,000 on margin to buy Wal-Mart stock?c. Assuming that Bill did use margin, paid $90 commission to sell his stock, and sold his Wal-Mart stock for $53, how much profit did he make on his Wal-Mart investment?6. Calculating yields. Assume you purchased a corporate bond at its current market price of $850 on January 2, 2002. It pays 9 percent interest and it will mature on December 31, 2011, at which time the corporation will pay you the face value of $1,000. a. Determine the current yield on your bond investment at the time of purchase.b. Determine the yield to maturity on your bond investment.

 

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