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Personal Financial PlanningSHOW ALL YOUR WORK TO OBTAIN FULL CREDITTime Value of Money Problem – Chapter 2
Solve for Future ValueInput information:
Solve for Future Value
Solve for Future Value
Solve for PMT
Balance Sheet Problem – Chapter 2
To save time formatting your answer, list the Assets, Liabilities, and Net Worth in a single vertical column on the left side of the page.
NOTE:ItemCash on handBank Credit Card Balance
· If you won $250,000 today and invested all of it in a stock that paid 8% return, how much would you have in 20 years?
· If you invested $10,000 today, how much would you have in 10 years if you earned 10% on that money?
· If the average new home cost $200,000 today, how much would it be worth in 10 years if inflation is 4% per year?
· If you can earn 8% per year, how much will you have to save each year if you want to retire in 35 years with $2,000,000?
· Construct a Balance Sheet for the Jones family from the information listed below.
Auto Loan BalanceMonthly Credit Card PaymentTotal Value of HomeMortgage on HomeMonthly SalaryJewelryStocksCoin Collection2011 Honda
Personal Financial PlanningSHOW ALL YOUR WORK TO OBTAIN FULL CREDIT
CONTINUED:
Tax Problem Using Itemized Deductions – Chapter 2· The Sanchez family is filing their joint tax return. They want to itemize their deductions, and have an Adjusted Gross Income (AGI) of $85,000. Based on the information listed on the next page below:
(1) List each item they can deduct and the dollar amount associated with that item(2) Then, show the TOTAL amount that they can itemize on their tax return
A
B
Part 2 of Tax Problem:
Marginal Tax BracketTotal Tax Liability
Actual Tax Savings ItemizedThe Sachez family real tax savings is $2,475 if they decide on using itemized deductions instead of standard deductions.
Housing Problem – Chapter 5
1 point =1% of the loan
Home cost $200,000 they require 10% from the purchse price that is the following:$200,000
10%$20,000
Total Closing Cost
NOTE: Discuss how the Interest Rate and the Monthly Payment work on a Fixed Rate mortgage (a few sentences) as opposed to a Variable Rate mortgage ( a few sentences).
· Assuming that the Sanchez family has a Standard Deduction of $11,400, and that they are in a 25% Marginal tax bracket. Then, determine how much they can save by Itemizing their deductions instead of using the Standard Deduction.
· Your bank is offering a 5.5% fixed-rate mortgage that requires a Down Payment of 10% of the home’s Purchase Price. Closing costs are $750 PLUS three (3) Points.
(1) How much will the Closing Costs be on a $200,000 home?
(2) What are the Pros and Cons of Fixed rate loan versus a Variable rate loan.
Personal Financial PlanningSHOW ALL YOUR WORK TO OBTAIN FULL CREDITA Different Type of Housing Problem – Chapter 5
Figure out Monthly Payment 15 years x 12=180 N
Use The online Calculator for this problemTVM Calculator
PV:PMT:
FV:
TVM CalculatorPV:
PMT:FV:
NOTE: This is NOT a math problem. YOUR ANSWER SHOULD BE IN THE FORM OF AN ESSAY.Use a paragraph (3-4 sentences) to answer EACH of the four (4) questions above.
Disability Insurance ESSAY Problem – Chapter 8
Calculate:
· Kevin and Julie are purchasing their first home with a $200,000 loan, but can’t decide whether to finance it with a 15-year fixed-rate mortgage or a 30-year fixed-rate mortgage. Their options are:(1) 15-year mortgage at 4.5% interest, OR(2) 30-year mortgage at 5% interest I
(A) First, calculate the monthly payment for EACH loan using PV, I, N, and PMT PV FVSolve for PMT: PMT:
· Eleanor Smith wants to purchase her first car. She’s not familiar with the purchasing process but thinks that she can afford to pay $350 per month on a loan or a lease. She has $3000 to put towards a down payment. If you were asked to guide her through the buying experience:
(1) How would you advise her as far as researching the car?(2) Should she buy a new or a used car?(3) How should she go about negotiating the price?(4) How should she go about financing the loan?
· Pete is an accountant who earns $35,000 a year. His monthly TAKE HOME pay is $4,500. His wife is a volunteer at a local charity organization, but receives NO benefits. Pete’s company has a short-term disability plan that provides employees with 65% of their GROSS monthly pay for only TWO (2) years.
(1) Compute how much additional monthly benefit John will need after using his disability plan benefits.
(2) Explain in a paragraph of 5-6 sentences how Pete can supplement his disability benefits with a personal insurance policy. State the type of supplemental insurance policy he should buy, and what kind of provisions it should include.
Personal Financial PlanningSHOW ALL YOUR WORK TO OBTAIN FULL CREDIT
They incur the following losses:
NOTE:Use 2-3 sentences to explain Yield to MaturityUse 2-3 sentences to explain the importance of these yields to an investor
Find the Price of Bond:Po= 1000[(1.20)-1]/(.20)=$1000From online Calculator find the YTM:
Example ProblemsFind the yield to maturity for the semiannual coupon bond with the following features.To solve for Current Yield we have to solve for Present Value of BondCalculator or Excel Input:N=20 yearsI=20% or .20PMT=(1000 x .20)= 200 or -200
Medical Insurance Problem – Chapter 10· Jonathan and Jeri have a comprehensive major medical insurance policy that covers them and their two daughters. The policy has the following provisions:
(1) $500 calendar-year family deductible(2) $2600 stop-loss provision(3) 80% co-insurance clause
Investment Problem: Bonds – Chapter 12
· Explain the DIFFERENCE between a bond’s CURRENT YIELD and its YIELD TO MATURITY
· Find the CURRENT YIELD and the YIELD TO MATURITY of a bond that has the following features:(1) It will mature in 20 years(2) It has an coupon (interest) rate of 20%(3) It has a Par Value of $1,000(4) It currently trades in the market at 20%
PV?= 850.44 present value or current price of bondSo the current yield input:20% Coupon or interest rate on bond1000 par value or FV$850.44 PV or Current market price of BondCalculate the annual interest income on the bond first1000 x .20= 200So that Current Yield:$200/850.44=23.52%The current yield is always closely tied to the interest rates of the bond
Solving For YTM or Yield to MaturityFinancial Calculator Input:Solving for I/YR or I (interest rate)N=20PV= -850.44PMT= 200FV=100I= 23.57 or 23.6% Solve onlinehttp://www.zenwealth.com/BusinessFinanceOnline/BV/YTM.html
Final Exam Review – Exercise 1
I 0.08N 20
PMT 0PV -250,000
FV?= $1,165,239.29
I 0.1N 10
PMT 0PV -10,000
FV?= $25,937.42
I 0.04N 10
PMT 0PV -200,000
FV?= $296,048.86
I 0.08N 35
PV 0FV 2,000,000
PMT?= ($11,606.53)
AssetsLiquid Assets
Dollars Cash on hand 1001005,000 Total Liquid asset: 100
25,000325 Investment250,000 Stocks 1,500225,000 Total Investment: 1,5004,500500 Real Property1,000 Primary Home 250,0001,500 Total Rel Property: 250,00025,000
Personal PropertyAuto 25,000Jewelry 500Coin Collection 1,500Total Personal Property 27,000Total Assets(i): 277,100
LiabilitiesCurrent LiabilitiesCredit Card Balances 5,000Total Current Liabilities: 5,000
Long Term LiabilitiesHome Mortgage 225,000Auto Loan Balance 25,000Total Long Term Liability: 250,000II Total Liabilities 255,000Net Worth (I - II) 22,100Total Liability 277,100
Page 2
Item Dollar AmountMedical Expenses (A) 5000 Cannot Deduct FALLS BELLOW AGI TRESHOLDState Income Taxes Paid 5,000 Deduct full amountReal Estate Taxes Paid 4,000 Deduct full amountHome Mortgage Interest Paid 10,000 Deduct full amount
The Sanchez family is filing their joint tax return. They want to itemize their deductions, and have an Adjusted Gross Income (AGI) of $85,000. Based on the information listed on the next page below:
Tax Problem Using Itemized Deductions – Chapter 2
Gifts to Charity 2,000 Deduct full amountCredit Card Interest Paid 1,000 Cannot DeductUnreimbursed Employee Expenses (B) 2000 Deduct Only: $2000 - $1700= $300NOTES:AGI=$85,000 The percentage deduction for medical and dental is 7.5% that is 85,000 X 7.5%= $6,375 they cannot deduct is below minimum Refer to Chapter 3 pgs. (94-95) to find that 7.5% is only for medical and dental you have to multiplied with AGI for the year. Also unreimbursed job expenses can only be deducted if it exceeds the minimum threshold when multiplied from AGI which in this case is $85,000 X .02= $1,700 if it falls below this amount it won't be included in itemized deductions. However in this case you can include, because $2,000>$1,700, you can only deduct the differece of $300. Also 2% applies to job related expense multiplied with the AGI for that year.Total Itemized deductions allowed for the Sanchez family is $21,300
Standar Deductions: Itemized Deductions$11,400 21,300
25% 25%$2,850 $5,325.00$2,475
Home Value$200,000
20,000 Deduct$180,000
3% Multiply$5,400 $750 Add
$6,150
ESSAY QUESTIONNOTE: Discuss how the Interest Rate and the Monthly Payment work on a Fixed Rate mortgage (a few sentences) as opposed to a Variable Rate mortgage ( a few sentences).
Final Exam Review – Exercise 1
Tax Problem Using the Standard Deduction – Chapter 2
Assuming that the Sanchez family has a Standard Deduction of $11,400, and that they are in a 25% Marginal tax bracket. Then, determine how much they can save by Itemizing their deductions instead of using the Standard Deduction.
Your bank is offering a 5.5% fixed-rate mortgage that requires a Down Payment of 10% of the home’s Purchase Price. Closing costs are $750 PLUS three (3) Points.
15-Year Mortgage at 4.5% 30 Year Mortgage at 5%4.5% 5%180 360
200,000 200,0000 0
DO NOT Excell to solve this problem it gives an error
TVM Calculator$200,000 Rate: 4.50%
1,529.99 Periods: 180$0
TVM Calculator$200,000 Rate: 5%$1,013.37 Periods: 360
$0
$35,000 22,750 Monthly Disability benefits for part A. is $1,895.8365% 12
$22,750 1895.83333333333
Kevin and Julie are purchasing their first home with a $200,000 loan, but can’t decide whether to finance it with a 15-year fixed-rate mortgage or a 30-year fixed-rate mortgage. Their options are:
Eleanor Smith wants to purchase her first car. She’s not familiar with the purchasing process but thinks that she can afford to pay $350 per month on a loan or a lease. She has $3000 to put towards a down payment. If you were asked to guide her through the buying experience:
Pete is an accountant who earns $35,000 a year. His monthly TAKE HOME pay is $4,500. His wife is a volunteer at a local charity organization, but receives NO benefits. Pete’s company has a short-term disability plan that provides employees with 65% of their GROSS monthly pay for only TWO (2) years.
Explain in a paragraph of 5-6 sentences how Pete can supplement his disability benefits with a personal insurance policy. State the type of supplemental insurance policy he should buy, and what kind of provisions it should include.
Final Exam Review – Exercise 1
Type of Loss Date of Loss
Flu (Jeri) 1/10/2012Leg Injury (Jonathan) 6/27/2012Surgery ( Jonathan) 10/25/2012Broken Arm (Jonathan) 1/4/2013
Indicate how much the insurance company will pay for each of the four losses listed above.
Use 2-3 sentences to explain Current Yield.
$$
%
%
Jonathan and Jeri have a comprehensive major medical insurance policy that covers them and their two daughters. The policy has the following provisions:
Page 1
Itemised Deductions:Cannot Deduct FALLS BELLOW AGI TRESHOLD State Income Taxes PaidDeduct full amount Real Estate Taxes PaidDeduct full amount Home Mortgage Interest PaidDeduct full amount Gifts to Charity
Deduct full amount Unreimbursed Employee ExpensesTotal Itemized Deductions:
Deduct Only: $2000 - $1700= $300
AGI=$85,000 The percentage deduction for medical and dental is 7.5% that is 85,000 X 7.5%= $6,375 they cannot deduct is below minimum Refer to Chapter 3 pgs. (94-95) to find that 7.5% is only for medical and dental you have to multiplied with AGI for the year. Also unreimbursed job expenses can only be deducted if it exceeds the minimum threshold when multiplied from AGI which in this case is $85,000 X .02= $1,700 if it falls below this amount it won't be included in itemized deductions. However in this case you can include, because $2,000>$1,700, you can only deduct the differece of $300. Also 2% applies to job related expense multiplied with the AGI for that year.
Page 3
Monthly Disability benefits for part A. is $1,895.83
Eleanor Smith wants to purchase her first car. She’s not familiar with the purchasing process but thinks that she can afford to pay $350 per month on a loan or a lease. She has $3000 to put towards a down payment. If you were asked to guide her through the buying experience:
Pete is an accountant who earns $35,000 a year. His monthly TAKE HOME pay is $4,500. His wife is a volunteer at a local charity organization, but receives NO benefits. Pete’s company has a short-term disability plan that provides employees with 65% of their GROSS monthly pay for only TWO (2) years.
Page 4
$ Amount of LAmount Deductible
Co-Insurance Clause
$200.00 500 $300.00 0$1,500.00 300 1,500x.80=1,200 80%
$10,000.00 2600 0 0$2,000.00 500 Carry Over $300 0
Amount Coverageand Carryover
State Income Taxes Paid 5,0004,000
Home Mortgage Interest Paid 10,0002,000
Unreimbursed Employee Expenses 300Total Itemized Deductions: 21,300
Also unreimbursed job expenses can only be deducted if it exceeds the minimum threshold when multiplied from AGI which in this case is $85,000 X .02= $1,700 if it falls below this amount it won't be included in itemized deductions. However in this case you can include, because $2,000>$1,700, you can only deduct the differece of $300. Also 2% applies to job related expense multiplied with the AGI for that year.
Insurance Payment200 $0
300+240=540 1,200/.80=9602,600-200-540=1,860 10,000-1,860=8,140New Year 500+300=800 2,600-800=1,200
Jonathan/JerryPayment
Investing in Mutual Funds – Chapter 13
The XYZ Class A Share mutual fund has the following features:
Use this information to answer the following the four questions on the following page:four questionsEQUATION: NET ASSET VALUE= MUTUAL FUND'S NET ASSET VALUE/ SHARE OUTSTANDING
SHARES OUTSTANDING=MUTUAL FUND'S NET ASSET VALUE/ NET ASSET VALUEThat is $10,000/35.64=280.58 or 281 shares
- Net Asset Value (NAV) of $35.64- Offer/purchase price of $37.81
(A) How many SHARES will you receive when you invest $10,000?(B) What is the PERCENTAGE load?(C) What is the LOAD CHARGE, in dollars, for this transaction?(D) The Class A fund in this example is a front-load fund. If instead, it were a NO-LOAD funds, what THREE (3) criteria must a mutual fund meet to be considered a NO-LOAD fund?
NET ASSET VALUE= MUTUAL FUND'S NET ASSET VALUE/ SHARE OUTSTANDINGSHARES OUTSTANDING=MUTUAL FUND'S NET ASSET VALUE/ NET ASSET VALUE
That is $10,000/35.64=280.58 or 281 shares
The Class A fund in this example is a front-load fund. If instead, it were a NO-LOAD funds, what THREE (3) criteria must a mutual fund meet to be considered a NO-LOAD fund?