BUSN 380 Personal Financial Planning – All 7 Weeks Problem Sets 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 preparer 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, $3,670 Household assets, $89,890 Investment assets, $8,340 Long-term liabilities, $76,230 Current liabilities, $2,670 10. 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 2 1. Thomas Franklin arrived at the following tax information: Gross salary, $46,660 Interest earnings, $225 Dividend income, $80 One personal exemption, $3,400 Itemized deductions, $7,820 Adjustments to income, $1,150 What 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 3 1. Louise McIntyres 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 Louises 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 ch…
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