Exam #1

You and your new Australian bride, Matilda, are applying for a loan and are required to submit a balance sheet with your net worth. You own a 2008 Toyota Camry that you bought last month for $9,995. The Kelly Blue Book value for this car is $13,995. You owe $8,150 on the car loan for the Camry. You pay off your Visa credit card every month and have not paid any credit card interest this year. The current Visa credit card balance is $3,522, and the next statement is due in 15 days. You have a student loan balance of $6,500. You presently have $425 in your checking account and $1,540 in your savings account. You own 100 shares of IBM stock that you purchased for $85.50 per share. One share of IBM is now selling for $158.42. You own computers and other electronics that you purchased for $4,100 but could probably sell today on Ebay for $1,800. Your gross income is $80,000 per year. What is your current net worth?

$15,430

Michael and Suzanne just got married, and they received $1,000 from a friend as a wedding gift. Instead of spending the money with reckless abandon, they have decided to put the whole sum in a savings account that earns 2% compounded annually. How much money will they have in the account after 10 years?

$1,218.99

If Jeff's net worth is <$43,529> and his assets total $60,500, what are his total liabilities?

$104,029

Know how much the average bounced check costs you

$30.47

You receive and inheritance of $500,000 and promptly invest it in an account which yields an 8% annual return, compounded monthly. If you withdraw $2,500 at the beginning of each month, how long will the $500,000 last?

Begin Mode PV = <$500,000> PMT = $2,500 i = 8 / 12 n = error/no solution; in other words, forever.

True or False. Rent is considered a liability when calculating one's net worth.

False

True or false. The nominal return is the return on an investment after the impact of inflation and taxes is taken into account.

False

the four "why's"

Family: To return with your family back to Heavenly Father's presence Individual: To accomplish your divine mission Spiritual: To bring you to Christ Temporal: To help you become a wise steward

Define Certificate of Deposit (CD)

Funds that must be kept in the account for a specific amount of time

The primary purposes of SFL 260

Help you become a wise steward of your material resources in such a way that you, your spouse, and your family gain eternal life.

Know the category that is often overlooked in a budget

Miscellaneous

Define Checking Account

Money can be withdrawl from writing checks, accessing ATMs, using debit cards, and authorized automatic withdrawls

Lump sum problems never utilize which function on the financial calculator?

PMT

On a net worth statement, what part of a credit card balance should be included under liabilities?

The current outstanding balance.

True or False. Deposits in most commercial banks, internet banks, and credit unions are insured to the same degree.

True

In Time Value of Money calculations, PV stands for __________.

present value

In 2015, Carolyn paid $13,000 for her first year of college tuition. Carolyn's mother Barbara started college in 1992. If tuition increased 8% per year between 1992 and 2015, how much did Barbara pay for her first year of college tuition in 1992?

$2,214.10

Nicolette has earned $62 in interest during the first year of her investment and has a 2.8% effective annual yield. How much did Nicolette invest as her principal?

$2,214.29

Today Andy opened a college savings account for his newborn daughter with an initial deposit of $2,300. If the account pays 1.25% interest annually, how much interest will Andy have earned after one year?

$28.75

[Three-part question] Eighteen years from now, Alex and Linda would like to have $20,000 saved up in their daughter's college fund. Assuming they can earn 10% interest, answer the following questions: How much money would they need to invest today as a lump sum to meet their goal if interest is compounded annually? How much money would they need to invest at the end of each year to meet their goal? How much money would they need to invest at the beginning of each year to meet their goal?

$3,597.18; $438.60; $398.73

Elliott wants to have money set aside for a rainy day, so he invests $2,400 into a savings account that pays 1.3% annual interest, compounded monthly. After one year, how much interest will Elliott have earned? Round each month's interest to the nearest cent.

$31.39

Jasmine, a BYU student with long blonde hair, opens a savings account at Zions Bank and deposits $4,000. The account pays .75% annual interest. What will her account balance be after one year

$4,030

Jade will graduate from high school in three years, and by the time she graduates, she wants to have $5,000 saved up to pay her first year of college tuition. How much money will she need to invest today in an account that earns 7% compounded annually in order to meet her goal?

$4,081.49

Maudie and Eric just had their fourth child, and their sedan is now too small for their family. When applying for a car loan on a minivan, they are asked to present a net worth statement. Use the following information to help them calculate their net worth. They own a 1999 Mercury Sable that has a Kelly Blue Book value of $2,000. They also own a home that is worth $150,000. Their remaining home mortgage balance is $105,000. They have $10,000 in student loan debt. The balance of their checking account is $1,231.44, and their savings account balance is $3,987.32. What is their current net worth?

$42,218.76

William has an effective annual yield of 3.5%. He originally invested $1,300. How much interest has William earned in one year?

$45.50

Yolanda is planning to buy a new car in seven years. If she deposits a lump sum of $450 in a savings account that earns 5% interest compounded quarterly, how much money will she have to use as a down payment on her new car in seven years?

$637.20

If Jennifer has a net worth of <$8,900> and her assets total $56,000, what is the total value of her liabilities?

$64,900

Isaiah's net worth is $55,090, and his liabilities total $17,900. What is the total value of his assets?

$72,990

Bernard invests $400 in a bank account that earns 1% annual interest compounded semi-annually. How much interest will he have earned after two years?

$8.06

Know to what degree the FDIC insures deposits in member banks

-Deposits are insured -FDIC insures deposits at commercial banks for up to $250,000 per depositor($500,000 for joint depositors) -if the bank fails, you get your money back up to the limit-all accounts at one back are added together -limit is per institution (if you have more than $250,000, open accounts in multiple institutions) *NCUA insures deposits at CUs for up to $250,000 per member

The three things that the textboook wants everyone to remember

-Life is hard -When life doesn't go as planned, don't get frustrated -Things take time(TTT) *the best things are free

Know what an income and expense statement is and how it is different from a budget

-represents monthly budgets for an extended period of time -forecast monthly income and expenses for a time period to prepare in advance -planning tool, NOT a backward-looking journal

the eight "how's"

-set some goals and put a price tag on them -figure out where your money is going now -get organized-automate your savings -save at least 10% of take -home pay-save three months emergency supply -non-housing debt, no more than 20% of take home pay -housing debt, no more than 30% of take home pay

the four "what's"

1. Ownership 2. Stewardship 3. Agency 4. Accountability

What is the annual inflation rate in the United States in 2017

1.2%

What is the effective annual yield (APY) of a savings account that pays out 1.5% APR compounded annually?

1.5%

Carley has earned $18 in one year from her CD. Her original investment was $1,000. What has been Carley's effective annual yield?

1.8%

What is the effective annual yield (APY) of a savings account that pays out 2.5% APR compounded monthly?

2.53%

Thomas is not too bright. He wants to have $5,000 saved up in 6 years so that he can surprise his parents with a luxurious vacation for their 50th wedding anniversary. If he invests $1,000 today as a lump sum in a bank account that compounds interest quarterly, what annual interest rate will he need in order to achieve his goal?

27.74%

The general rule of thumb for a family emergency fund is to have sufficient liquid assets to cover ________ of family expenses.

3-6 months

Edward and Janice want to buy a boat for their family to water ski on Utah Lake. If they invest $600 at the end of each month in a money market account that averages an annual return of 6.20% (compounded monthly), approximately how long will it take them to save $30,000?

3.72 years

Reagan receives an inheritance from her grandmother of $15,000 and promptly invests it in a mutual fund that yields a 9.6% annual return. If Reagan withdraws $3,200 at the beginning of each year to pay for violin lessons for her 12 children, how long will the $15,000 last?

5.767 years

Sonya saved $15,000 last summer from working on a road construction crew in Montana. What a great job. She came back really tan. She wants to invest the full amount now so that in 10 years she can buy her dream car, which costs $30,000. What rate of return will she need to receive in order to accomplish this goal?

7.18%

Anita wants to go on a study abroad trip in three years. The trip will cost her $5,000. If she puts $4,000 in a savings account today, what annual rate of interest will she need to earn in order to have $5,000 for her trip in three years?

7.72%

Amelia is applying for a mortgage loan, and she is required to submit a net worth statement as part of the application process. The following table shows her assets and liabilities. Use this information to calculate her current net worth. Assets: 2009 Ford Taurus $12,345, Checking account$743, Savings account $1,322, Two closets full of designer clothes and accessories $475 Liabilities: Car loan $10,560, Credit card balance $552, Student loan $4,000

<$227.00>

The current market value of Jasper's 1986 Corvette is $5,700. His checking account balance is $895.60, and his savings account balance is $3,203.78. Jasper has a student loan balance of $15,000 and a current VISA credit card balance of $35.46. Jasper always pays his credit card in full before the grace period is over. What is Jasper's current net worth?

<$5,236.08>

What is "mad money"?

A certain amount of money allocated to each spouse each month that they can spend however they want, without accounting to the other spouse.

All of these records should be kept for at least seven years...

Access to bank statements Contributions receipts Income tax returns Medical receipts

In one year, Alex and Stephanie have earned $90 in interest and have a 3.1% effective annual yield. How much did Alex and Stephanie invest as their principal? (Round to nearest dollar.)

Annual percentage Yield = annual interest earned/beginning balance 0.031 = $90 / x x = $90 / 0.031 = $2,903

Monetary Assets

Assets that can be quickly and easily converted into cash

You are applying for a loan and are required to submit a balance sheet with your net worth. You own a 2012 Toyota Corolla that you bought last month for $21,995. The Kelly Bluebook value for this car is $22,995. You owe $18,150 on the car loan for the Camry. You pay off your Visa credit card every month and have not paid any credit card interest this year. The current Visa credit card balance is $9,522 and the next statement is due in 15 days. You have a student loan balance of $7,500. You presently have $1,425 in your checking account and $540 in your savings account. You own 100 shares of IBM stock that you purchased for $45.50 per share. It is now selling for $162.42. You own computers and other electronics that you purchased for $8,000 but could probably sell today on E-bay for $1,500. Your gross income is $110,000 per year. What is your current net worth?

Assets: $22,995 Toyota Corolla Blue Book Value $ 1,425 Checking Account $ 540 Savings Account $16,242 IBM Stock Current Market Value $ 1,500 Electronics Current Market Value $42,702 Total Assets Liabilities: $18,150 Car Loan $ 7,500 Student Loan $ 9,522 Credit Card Balance $35,172 Total Liabilities Net Worth = Assets - Liabilities = $42,702 - $35,172 = $7,530

Calculate Joey's net worth using the following information: White Subaru Forester (market value) $ 5,200 Auto loan (remaining balance) $ 2,450 Mortgage loan (remaining balance) $45,000 Monthly mortgage payment $ 500 Home (market value) $60,000 Student loan balance $19,500 Electronics $ 1,800 Yearly Income $50,000

Assets: White Subaru Forester (market value) $ 5,200 Home (market value) $60,000 Electronics $ 1,800 Total Assets $67,000 Liabilities: Auto loan (remaining balance) $ 2,450 Mortgage loan (remaining balance) $45,000 Student loan balance $19,500 Total Liabilities $66,950 Net Worth = Assets - Liabilities = $67,000 - $66,950 = $50 Note: Ignore yearly income and monthly mortgage payment.

Rachel is trying to decide between investing $4,500 or $5,500 at the beginning of each year for the next 50 years into a retirement account yielding 9.78%. After 50 years, how much extra money will Rachel have in her IRA if she invests $5,500 annually instead of $4,500 annually?

Begin Mode PMT = <4,500> n = 50 i = 9.78 FV = 5,314,345.44 Begin Mode PMT = <5,500> n = 50 i = 9.78 FV = 6,495,311.09 Extra money = $6,495,311.09 - $5,314,345.44 = $1,180,965.65

Risk and return go together. Cash isn't very risky but has next to no return. In fact, the cash in your wallet is losing value due to inflation. Which option could you pick to take on the smallest amount of risk and still earn some interest for your emergency fund?

Certificates of deposit

According to a statement attributed to Albert Einstein, what is the eighth wonder of the world?

Compound interest

Fixed Expenses

Costs that do not change from month to month

Know the formula for calculating net worth (very simple formula)

Current market value of your family assets MINUS the liabilities you have (usually debt) ON a particular date

You decide you want to buy a used Lexus in five years. If the estimated purchase price in five years is $30,000, how much money must you invest at the beginning of each month over the next five years if you can earn 6.5% annual interest with monthly compounding?

FV = 30,000 n = 5 * 12 i = 6.5 / 12 PMT = <422.20>

True or False. A student loan has an offsetting asset that can be shown on a balance sheet.

False

True or False. An income and expense statement does not take into account income and expenses that are in the past. It is solely designed to predict what your income and expenses will be in the future to help you budget your money for the coming year.

False

True or False. Record keeping only pertains to financial records.

False

Isadora and Klaus just created their January 2019 income and expense statement. They spent their combined $4,000 gross monthly income on the following expenses: $400 for tithing, $900 on rent, $450 to their Roth retirement plan, $1,200 on taxes, $400 on food and eating out, $120 on entertainment, and the rest in their savings account. They want to have more money for savings in February, they decide to invest an extra $50 in their Roth retirement (for a total of $500), and cut each remaining variable category in half. If they put the rest of their money into savings, how much savings will Isadora and Klaus budget for in February?

February Fixed expenses: $ 400 Tithing $ 900 Rent $1,200 Taxes $2,500Total February Variable expenses: $ 500 Roth ($450 + $50 Extra) $ 200 Food and eating out $ 120 Entertainment $ ? Savings account $1,500Total Savings Account = Gross Income - Feb. Fixed Expenses - Feb. Variable Expenses = $4,000 - $2,500 - $500 - $200 - $120 = $680

According to the acronym HALT, you should avoid making financial decisions when you are ________.

Hungry, angry, lonely, or tired

You receive a $6,400 gift from your grandmother and invest it in a savings account at Bank of America which pays 1.9% annual interest. After one year, how much interest will you have earned?

I = P * R * T I = $6,400 * 0.019 * 1 = $121.60

What is the formula for interest earned or interest paid

I = P R T

Define Money Market Account

Interest rate varies with the current level of market interest rates.

Neil has the choice of receiving $40,000 today (Option #1) or $70,000 in 10 years (Option #2) as a benefit payment from his deceased mother. What a good mom to remember him! If Neil could invest the $40,000 and earn 7.5% interest for 10 years, would it be more worthwhile for him to receive $40,000 today or $70,000 in 10 years?

It would be more worthwhile for Neil to receive $40,000 today

Define Savings Account

Money is withdrawn either at the bank or after transferred to a checking account where it can be accessed more accessibly.

Your net worth totals $10,500. If you have $20,000 in assets, what is your total of liabilities?

Net Worth = Assets - Liabilities $10,500 = 20,000 - x Liabilities = $9,500

You decide to make your neighbor's great-great-great grandchildren rich. If you invested a lump sum of $2,000 in a mutual fund yielding 7% per year for 102 years, how much money would you have in the great-great-great grandchildren fund?

PV = <$2,000> n = 102 years i = 7 FV = $1,986,896.84

You invest $10,000 into a CD (which stands for ___________). The CD has a 2.1% annual interest rate, with monthly compounding. After one full year how much interest have you earned? What is the effective annual yield (APY)?

PV = <10,000> n = 1 * 12 i = 2.1 / 12 FV = 10,212.03 1. CD = Certificate of deposit 2. Interest earned = $10,212.03 - $10,000 = $212.03 3. Effective Annual Yield (APY) = Interest / Investment = $212.03 / $10,000 = 2.12%

Linda and Graham, a happily married BYU couple, invest $2,000 as a lump sum in a savings account that earns 3.5% interest compounded monthly. They want to buy a gazebo. How long will it take them to save $3,500 for their home improvement project?

PV = <2,000> i = 3.5 / 12 FV = 3,500 n = 192.15 months

You are obsessed wit the number '2'. You invest $22,222 as a lump sum into a savings account which has semi-annual compounding. The interest rate is 2 percent per year. After two years, how much money will you have in the account?

PV = <22,222> n = 2 * 2 i = 2 / 2 FV = 23,124.30

A sack of dimes ($3,600 worth) drops from the sky and lands at your feet. You invest the $3,600 into a savings account at Utah Valley Credit Union which pays 1.3% annual interest compounded quarterly. How much interest will you earn after 4 years?

PV = <3,600> n = 4 * 4 i = 1.3 / 4 FV = 3,791.83 Interest = Future Value - Principal = $3,791.83 - $3,600 = $191.83

In order to budget the better way, you should

Pay the Lord first, and then pay yourself.

Know the characteristics of a SMART goal

Specific, Measurable, Achievable, Realistic, Timely

Why is it important to have adequate liquid assets in your portfolio?

To be able to manage unexpected financial storms

True or False. Budgeting is the process of planning in advance how to spend money.

True

True or False. Credit unions are considered not-for-profit entities and therefore generally offer higher rates on savings accounts and lower rates on loans than most commercial banks do.

True

True or False. The formula for net worth is the total value of your assets minus the total value of your liabilities

True

You have a choice between investing $10,000 at Utah Savings & Loan or Idaho Bank. Utah Savings & Loan offers a money market account which pays 4% annual interest which is compounded daily. Idaho Bank offers a money market account which pays 4.1% annual interest and compounds annually. Which account will pay the most interest over a two year period? How much extra interest will they pay?

Utah Savings & Loan PV = <$10,000> n = 2 * 365 i = 4 / 365 FV = $10,832.82 Idaho Bank PV = <$10,000> n = 2 i = 4.1 FV = $10,836.81 Idaho Bank's Extra Interest Paid = $10,836.81 - $10,832.82 = $3.99

Know what is perhaps the most important criteria in choosing a bank in today's environment

convenience consideration security cost

On a net worth statement, assets, such as clothing, automobiles, furniture, and electronics, should be valued at _______

current market value

What are variable expenses?

expenses that change from month to month

In Time Value of Money calculations, FV stands for __________.

future value

the meaning of "Opportunity Cost"

the potential loss or gain that occurs when one financial option is chosen over another. It applies to more than just finances.