Ben Collins plans to buy a house for $210,000. If that real estate is expected to increase in value 3 percent each year, what would its approximate value be six years from now?

$250,750.98

210,000 [+/-] [PV] 3 [I/YR] 6 [N] [CPT] [FV]

If you desire to have $20,000 for a down payment for a house in five years, what amount would you need to deposit today? Assume that your money will earn 4 percent.

$16,438

20,000 [FV] 4 [I/YR] 5 [N] [CPT] [PV]

Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $15,000 available each year for various school and living expenses. If he earns 4 percent on his money, how much must be deposited at the start of his studies to be able to withdraw $15,000 a year for three years?

$41,626.37

15,000 [PMT] 3 [N] 4 [I/YR] [CPT] [PV]

Carla Lopez deposits $3,400 a year into her retirement account. If these funds have an average earning of 9 percent over the 40 years until her retirement, what will be the value of her retirement account?

$1,148,800.13

3400 [+/-] 9 [I/YR] 40 [N] [CPT] [FV]

If you earn 7 percent on your investments, how long would it take for your money to double?

10.24 years

100 [+/-] [PV] 200 [FV] 7 [I/YR] [CPT] [N]

How many years will it take to have $100 to grow to $300 if invested at 20 percent compounded annually?

6.03 years

100 [+/-] [PV] 300 [FV] 20 [I/YR] [CPT] [N]

You bought a painting 10 years ago as an investment. You originally paid $85,000 for it. If you sold it for $484,050, what was your annual return on investment?

19%

85000 [+/-] [PV] 484050 [FV] 10 [N] [CPT] [I/YR

If you deposit $400 at the end of each year for 10 years in a savings account that pays 6 percent interest per year, how much will you have at the end of 10 years?

$5,272.32

400 [+/-] [PMT] 10 [N] 6 [I/YR] [CPT] [FV]

The Fuller Company has received a $50,000 loan. The annual payments are $6,202.70. If the Fuller Company is paying 9% interest per year, how many loan payments must the company make?

15

50000 [PV] 6202.70 [+/-] [PMT] 9 [I/YR] [CPT] [N]

Your firm plans to buy a warehouse for $100,000. The bank offers you a 30-year loan with equal annual payments and an interest rate of 8% per year. The bank requires that your firm pay 20% of the purchase price as a down payment, so you can borrow only $80,000. What is the annual loan payment?

$7,106.19

80,000 [PV] 30 [N] 8 [I/YR] [CPT] [PMT]

3 main elements that affect financial planning activities:

- Life situation
- Personal values
- Economic factors

Economics

study of how wealth is created and distributed

Economic conditions that most often influence financial decisions

- Consumer prices
- Consumer spending
- Interest rates

Inflation

- a rise in general level of prices

- likely to result from increased demand by consumers without increased supply

Consumer price index (CPI)

The annual price increase for most goods and services measured by the Bureau of Labor Statistics

The rule of 72

to find out how fast prices will double, divide 72 by annual inflation (or interest) rate

Financial goals should take S-M-A-R-T approach:

- Specific
- Measurable
- Action-oriented
- Realistic
- Time-based

Opportunity cost

what you give up by making a choice. This cost, commonly called trade-off, cannot always be measured w/ dollars

Most common personal opportunity cost

time

Time value of money

calculates increases in amount of money b/c of interest earned. Saving or investing dollar instead of spending it today results in future amount greater than dollar,

Computation of interest is based on:

(1) Amount of savings

(2) Annual interest rate

(3) Length of time money remains deposited

The main goal of personal financial planning is managing your money to:

achieve personal economic satisfaction.

An example of a personal opportunity cost would be:

time comparing several brands of personal computers

If inflation is increasing at 3.9 percent per year, and your salary increases at the same rate, how long will it take your salary to double?

19 years

If you desire your savings to double in 5 years, what rate of return would you need to earn? (Use the Rule of 72.)

14.40%

The advantages of personal financial planning include:

- Increased effectiveness in obtaining, using and protecting your financial resources
- Increased control of your financial affairs by avoiding excessive debt and bankruptcy
- Improved personal relationships resulting from better communicated financial decisions

Kent Fuller is in the 28 percent tax bracket. A nontaxable employee benefit with a value of $500 would have a tax-equivalent value of approximately

$694

Tax-equivalent value = Tax-exempt value/(1 –tax rate)

$500/(1 − 0.28) = $694.44

Caroline lives in City A and earns $40,000 per year. The cost of living index in City A is 80. She is considering a move to City B which has a cost of living index of 90. How large a salary will she require in City B to maintain her current standard of living?

$45,000

Salary in City A x (City B COL index/City A COL index)

=$40,000(90/80)=$45,000

Leeanna Roberts uses a computer to organize her personal financial records and update her budget activities.. These activities are an example of:

money management

One of the main purposes of personal financial statements is to:

Measure your progress toward financial goals.

A family with $50,000 in assets and $22,000 of liabilities would have a net worth of

$28,000

•Net Worth=Assets − Liabilities

= $50,000 − $22,000 = $28,000

This month, Kenneth Goldberg has cash inflows of $2,950 and cash outflows of $2,800, resulting in a

surplus of $150 Cash Inflows=$2,950 Cash Outflows=$2,800 Cash Inflows–Cash Outflows=$150>0 This is a surplus.

When preparing her monthly budget, Maria Kent has projected income of $3,700. Each month she pays $1,200 in rent, $42 for life insurance, and $240 for her auto loan. What percentage of her budget goes for these fixed expenses?

40%

Total Fixed expenses / projected income

= ($1,200 + $42 + $240) / $3,700

= $1,482 / $3,700 = 0.40 = 40%

A taxable investment produced interest earnings of $1,200. A person in a 22 percent tax bracket would have after-tax earnings of

$936

•Taxable gross earnings –tax owed = After-tax earnings

Tax owed = earnings x tax rate = $1,200 ×0.22 = $264

After-tax earnings=$1,200-$264=$936

•Or:After-tax earnings=Taxable gross earnings x (1–tax rate)

= $1,200 x (1 –0.22) = $936

A person has $5,000 in medical expenses and an adjusted gross income of $33,000. If taxpayers are allowed to deduct the amount of medical expenses that exceed 7.5 percent of adjusted gross income, what would be the amount of the deduction in this situation?

$5,000 − ($33,000 ×7.5%) = $2,525.

George Washburn had earnings from his salary of $32,000, interest on savings of $200, a contribution to a traditional individual retirement account of $1,200, and dividends from mutual funds of $125. George’s adjusted gross income (AGI) would be

32,000 + $200 + $125 –$1,200 = $31,125.

Kim Lee is single and earns $32,000 in taxable income. Use the following tax rate schedule to calculate the taxes he owes. Up to $9,525 10% $9,525-$38,700 12% $ 38,700 -$82,500 22% $82,500-$157,500 24%

[$9,525 ×0.10] + [($32,000 –$9,525) ×0.12] = $3,649.50

Effective personal tax strategies include:

- take advantage of tax credits for which you qualify.
- consider tax-exempt investments, such as municipal bonds.
- search out all possible itemized deductions.
- maximize contributions to tax-deferred retirement programs.

balance sheet

consists of assets (items of value), liabilities (amounts owed to others), and net worth (the difference between the total assets and total liabilities).

cash flow statement

- summarizes actual inflows and outflows of cash during a given time period.
- report of your spending patterns and can be used to create budget amounts for various expense categories.