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Market Cap: Large Cap

-greater than $10 billion -US market mostly large cap and slightly > 50% of total world cap

The longer the term, the more impact for interest rate changes. True or False.

True

The recent trend is for the federal government and corporations to shift more responsibility to the individual with respect to providing for their financial future. T or F

True

You should always find your cheapest source of financing for a car prior to actually visiting a car dealer to shop for cars.

True

Assume that the 10 year treasury note yield INCREASED from 2.9% to 3.0%. That would mean that the price of a 10 year treasury note:

decreased

Driver classification includes information on a person's ________ and is used to set auto insurance rates.

driving habits

Social security payments are always tax free since they are primarily a return of your money, which was previously deducted from your paycheck.

false

global investing

invest in global companies (50% of US).

Insurance cost

premium/insurance in thousands ex: 200,000 life/200 per year/200 = $1 per thousand

A mutual fund has a 1% operating expense ratio, and you just invested $22,000. How much of your investment will go toward paying the operating expenses of the mutual fund this year?

$220 $22000 * 0.01 = $220

What is the monthly car payment on a 5 year $17,500 car loan at 5% annual interest?

$330.25 end mode 12 p/yr PV = 17500 FV = 0 I = 5 shift N = 5 PMT = ? PMT = $330.25

Try to solve this problem without a calculator in order to fine tune your financial skills. You are considering joining BJs discount club, and the annual fee is $45. You expect that you will save 10% on your BJ purchases compared to your current "non-club" stores. How much do you have to spend at BJs in order to break even on your annual fee (i.e. save an amount equal to the fee)?

$450 per year $45/0.1 = $450

Points on mortgage

1% mortgage is 1 point 2% mortgage is 2 points

what is the beta for the stock market in general?

1.0

Assume you made an investment today for $10,000 and sold it five years later for $18,000. What is your annual rate of return (with interest compounded annually)?

12.5% end mode 1 p/yr PV = -10000 N = 5 FV = 18000 I = ? I = 12.5%

What is the effective interest rate assuming the following: Annual rate = 12.5% Pmt/yr = 12

13.24% End mode p/yr = 12 Shift NOM = 12.5 P/yr = 12 Shift EFF = 13.24%

If you have $10,000 today, and save $16,800 per year at the beginning of the year while earning an annual interest rate of 5.75%, how many years would it take to accumulate $750,000?

21 beg mode 1 p/yr PV = -10000 PMT = -16800 FV = 750000 I = 5.75 N = ? N = 21

If you have a $150,000 mortgage with a $900.00 monthly payment, payable over 30 years, what interest rate are you paying?

6% end mode 12 p/yr PV = 150000 PMT = -900 FV = 0 N = 30 I = ? I = 6%

What is the comparable pre-tax yield on a municipal bond yielding 5.2% assuming a marginal tax bracket of 15%?

6.12% Taxable Equivalent Yield = Tax-Exempt yield/(1 - marginal tax rate) 0.052 / 1 - .15 = 6.12%

Pre-tax

= after tax / 1-tax rate

Bill and Hillary each buy a house and take out a $100,000 loan. His house is in New York and her house is in Washington D.C. Bill takes out a conventional 30 year fixed rate mortgage, and Hillary opts for a conventional 15 year fixed rate mortgage. Which of the following correctly summarizes how Bill's mortgage is different from Hillary's (all other things being equal)?

Bill's 30 year mortgage has a higher interest rate, lower monthly payments and higher overall interest payments. It builds equity more slowly than Hillary's mortgage.

Life insurance- DINK

Divide debts + funeral

An investor can reduce both systematic and non-systematic risk in a stock portfolio by increasing the number of individual stocks held in the portfolio.

False

An example of an adjustment that is subtracted from gross income to compute "adjusted gross income" or "AGI" is:

IRA contributions (traditional IRA)

Note: If you print a Form 1040 Schedule A from the IRS site (see the Web Work) it will help with this question. _______________ is (are) fully deductible as an itemized deduction on Schedule A.

Interest on a $500,000 mortgage for a home which is your primary residence

A UCF graduate has two job offers. Job 1 pays $35,000 with a $5,000 non-taxable benefit, while Job 2 pays $34,800 and has a $5,700 non-taxable benefit. What is the PRE-TAX value of each job assuming the graduate is in a 24% marginal tax bracket? (Round to the nearest dollar)

Job 1: $41,579 Job 2: $42,300 Pre-Tax Value = After tax benefit / (1-tax rate) Job 1: Pre- Tax Value = $5000 / (1-.24) = $6578.95 + salary = $6578.95 + $35000 = $41,579 Job 2: Pre- Tax Value = $5700/0.76 = $7500 + 34800 = $42,300

Corporate bonds

Must be legally paid at maturity

Assume $300000, 30 year mortgage.

Part 1- 0 points End mode, p/yr = 12 PV = 300000 I = 4.6 N = 360 Pmt = ? Pmt = 1537.93 Shift AMORT = 4754.61 Principal = 13,700.59 Interest = 295,245.39 Balance Part 2- 1 point End mode, p/yr = 12 PV = 300,000 I = 4.3 N = 360 Pmt = ? Pmt = 1484.61 Difference: 1537.93-1484.61 = $53.32/month Effective Rate End mode, p/yr = 12 PV = 297000 (1% or 3000 withheld) Pmt = (1484.61) N = 360 I = ? I = 4.38

With respect to Roth IRAs and Traditional IRAs, which statement is true?

Roth IRA contributions are non-deductible, but earnings grow tax free

Stock Life Insurance Companies

Sells non participating policies -term life -whole life Shareholders, not policy holders, participate in profits

Mutual life insurance companies

Sells participating policies -term life -whole life Policy holders own and participate in profits of firm

Refer to question 4 above. With respect to the investor's stock transaction assuming all dividends received were "qualifying":

The separate gain on the stock is treated as a long-term capital gain, and both the capital gain and qualifying dividend income are now taxed at lower favorable rates.

A living will or advance health care directive documents your wishes in the event that you become so physically or mentally disabled that you are unable to act on your own. True or False.

True

In the event of a dispute, the written terms of the signed sales agreement will prevail.

True

growing annuity

Used in financial planning to determine the maximum real or inflation adjusted rate for withdrawals

Net Asset Value (NAV)

Value of fund's portfolio - liabilities/number of shares outstanding

cost per square foot

cost of house / square feet exclude patio, porch, garage

Which of the following investments would have the greatest potential for risk? a. government bonds b. stocks c. bank accounts d. options and commodities

d. options or commodities

Commodity investments

gold, etf

Which of the following investments would have the greatest potential for safety? a. government bonds b. stocks c. commodities d. options

government bonds

Market Cap: Mid Cap

greater than $2 billion

A $1,000 bond was issued five years ago with an 8% coupon. If interest rates fall for comparable bonds, you would expect the fair market value of the bond to

increase

Know how to use the prospectus

know how to use the prospectus

If you and your spouse or anyone else own property as ________________, each individual is considered to own a proportionate share for tax purposes, and only your share is included in your estate.

tenants in common

international investing

they would invest in ALDI or Sony (5% to US)

Changes in interest rates do not affect all bonds equally. Generally, the longer the bond's term, the more its price may be affected by interest rate fluctuations.

true

Refer to the CNN Money site on Life Insurance 101. Which policies provide term insurance with a money market type investment feature?

universal life

A situation in which one person is held responsible for the actions of another is:

vicarious liability

Refer to the CNN Money on Life Insurance 101. Life insurance is usually sold not bought, because the life insurance industry has a vested interest in selling you high commission, high cost ____________ policies.

whole life

Using the Rule of 72, approximately how long does it take for your money to double in value if you earn a 8% annual return?

9 years 72/8% = 9 years

Which of the following are the primary financial statements?

A balance sheet or statement of network An income statement A cash flow statement

You are shopping for a new cell phone. Your current monthly usages are as follows: Data: 2.5 GB Talk: 300 minutes Text messages: 500 Here are the current offerings: ATT $95/month for 3 GB of data, 250 minutes, and 500 text messages. Additional data is $10/GB and you must buy in 1 GB increments, overages are not prorated. Additional minutes are $0.15 each and additional texts are $0.10 each. Verizon $90/month for 2 GB of data, 500 minutes, and 400 text messages. Additional data is $15/GB and you must buy in 1 GB increments, overages are not prorated. Additional minutes are $0.05 each and additional texts are $0.10 each. Sprint $110/month unlimited data, talk and text Assuming you use exactly the amounts listed above for your historical usage, list the plans in order from lowest price (first) to highest price (last).

ATT, Sprint, Verizon ATT- $95 + $7.50 = $102.50 Verizon- $90 + $15 + $10 = $115 Sprint- $110

Which of the following was enacted to help pay for the Affordable Care Act?

An investment tax on high income individuals. A penalty on large employers who do not offer health insurance to full time workers. A reduction in the amount of allowed spending in a flexible spending account. An increase in the limitation on medical expenses on Sch. A for individuals under 65 years old.

Which of the following is TRUE? a)More and more employers are using credit reports as hiring tools. b)Federal law does NOT require applicants to be told if credit histories are being used in the hiring process. c)Federal law requires that job applicants must be told if credit histories are being used in the hiring process. d)It is against the law for employers to use credit reports as hiring tools e)Answers a and c are true.

Answers a and c are true. a)More and more employers are using credit reports as hiring tools. c)Federal law requires that job applicants must be told if credit histories are being used in the hiring process.

What is a disadvantage of using an adjustable rate mortgage (ARM) compared to a fixed rate mortgage? a. If interest rates rise, ARM interest rates will also increase after the lock in date. b. If interest rates fall, ARM interest rates will decrease after the lock in date. c. Initial interest rates for ARMs are higher than fixed rate mortgages. d. Your mortgage payments (principal and interest) are not fixed for the term of the loan with an ARM as they are with a fixed rate mortgage. e. Answers a and d are both disadvantages.

Answers a and d are both disadvantages. a. If interest rates rise, ARM interest rates will also increase after the lock in date. b. Your mortgage payments (principal and interest) are not fixed for the term of the loan with an ARM as they are with a fixed rate mortgage.

A $1,000 tax deduction is more valuable than a $300 tax credit (assuming the taxpayer is in a 24% tax bracket). True or False.

False $1000*0.24 = $240 < $300

Assume the following: Liquid assets $ 14,670 Current liabilities $ 2,670 Long term liabilities $66,230 Investment assets $ 9,340 Household assets $90,890 What is this person's net worth?

$ 46,000 Net worth = Assets - Liabilities Assets = $14670 + $9340 + $90890 = $114900 Liabilities = $2670 + $66230 = $68900 $114900 - $68900 = $46000

Assume you make $54,000/year ($4,500/month) and save 10% of your monthly salary ($450/month) in your 401-K account. Your employer will match 5% of your salary per month (at the end of the month) and deposit it in your 401-K account for 30 years. You expect this account to earn an 10% return. What is the future value of the 401-K account in 30 years?

$1,525,829 Future Value end mode 12 p/yr N = 30 I = 10 PMT = -675 (450 + 0.05(4500)) FV = $1,525,829

A student takes a $400 cash advance on his credit card in January. The cash advance fee is 2% of the amount withdrawn. In addition, he/she does not pay off the $400 balance on the credit card at month end. The credit card carries an 12% per annum interest rate. The student just received his February credit card statement. Assuming the beginning January 1 balance was zero, how much money could the student have saved in January had he/she not taken out the cash advance and paid off the balance due on time?

$12 Cash advanced fee = 400 * 0.02 = 8 12%/12 = 0.01 $400 * 0.01 = 4 4 + 8 = 12

A couple has two children ages 5 and 7 and only one spouse has income. Using the "non-working" spouse method, they should have ________ of life insurance.

$130000 Multiply the number of years until the youngest child reaches 18 by $10,000 18 - 5 = 13(10,000) = 130,000

A homeowner was robbed and lost $3,500 in jewelry and $3,800 in silverware. The homeowner's policy covers up to $500 of losses for jewelry and up to $1,000 in losses for the silverware with no deductible. How much is homeowner's recovery from the insurance company?

$1500 $500 + $1000 = $1500

A driver has 50/100/15 auto coverage. He/she is in an accident (and at fault) resulting in $10,000 of damage to a parked car and $20,000 damage to a store. How much must the driver pay of the total claims?

$15000 20000 + 10000 - 15000 = 15000

A student's bank statement reflects $1,600 at month end. The student's checkbook, before reconciling, reflects $1,500. The student has $20 of interest on the bank statement which has not been posted to his/her checkbook, deposits in transit of $115, and outstanding checks of $195. What is the reconciled bank balance?

$1520 Reconcile = balance per bank statement + deposits in transit - outstanding checks not clearing = 1600 + 115 - 195 = 1520

Your employer has offered you a choice of a lower cost HMO plan or a higher cost standard health insurance plan. Next year you will need physical therapy and want to compare the cost of the therapy under the two plans. The standard health insurance plan pays 70% of therapy after a $200 deductible, while the HMO will pay the full cost of the therapy as long as you pay a $15 co-payment per visit. Assume you need 10 therapy sessions that will cost $60 each for the high cost plan ($15 for HMO). How much would you save using the HMO vs. the traditional health insurance plan?

$170 HMO: 10($15) = $150 Traditional Health plan: $60(10) = $600 - $200 = $400 $400(0.7) = $280 $600 - $280 = $320 $320 - $150 = $170

A couple currently spends $80,000 per year for all their living expenses. Only one spouse works while the other spouse stays at home with the children. Upon the death of the working spouse, they want a life insurance policy whereby the proceeds could be invested in a tax-free municipal bond fund that would yield enough tax-free cash each year to pay the entire $80,000 of expenses (i.e. the non-working spouse would not have to return to work, and there would be sufficient funds on his/her death to leave some inheritance to the kids). They assume that the yield on municipal bond funds will be 4%. How much insurance should they purchase?

$2,000,000 =Pmt / interest $80000/0.04 = $2,000,000

A spender UCF graduate likes the prestige of a Lexus IS 250. Saver UCF graduate drives a Corolla. The internet shows that the five year cost of owning a 2010 Lexus IS 250 is $42,814 while the five year cost of owning a 2010 Corolla is $24,607, an $18,207 difference over five years. On an annual basis, this would equate to the Lexus costing $3,641.40 more per year. Assume our UCF saver invests the savings of $3,641.40 per year (end of the year) for 40 years and earns 11% per year (interest compounded annually). How much will the saver have in his/her retirement account as a result of driving lower cost cars throughout his/her lifetime?

$2,118,661.44 end mode p/yr = 1 Pmt = -3641.40 N = 40 I = 11% FV = ? FV = $2,118,661.44

A family has health coverage that pays 85% of medical expenses after the first $500 of qualifying expenses. If the family incurs $1,300 of medical expenses during the year, how much will their insurance company pay of the total claims incurred?

$680 $1300 - 500 = 800 800(0.85) = $680

A driver has 25/50/10 auto coverage. He/she is in an accident (and at fault) resulting in two bodily injury claims of $65,000 each. How much must the driver pay of the $130,000 in claims?

$80,000 $130000 - 50000 = 80000

A UCF graduate is getting a masters degree at night. The graduate expects to receive an annual salary of $7,000 per year more as a result of getting a masters degree. The graduate plans to work for 40 years, so he/she will earn $280,000 more in their lifetime ($7,000 x 40 years). What is the present value of a stream of $7,000 payments for 40 years based on an annual interest rate of 7%? Assume the $7,000 is paid annually at the END of the year. By the way, if it costs say $25,000 today to get a masters degree, do you think a graduate degree is a smart economic move if your salary goes up by $7,000 per year? Hint: Calculate Net Present Value

$93,322, yes get the masters degree, the net present value of this decision is $68,322. Present Value 1 P/YR End mode PMT = -7000 I = 7 N = 40 PV = $93,322 Net Present Value 1 P/YR End mode CFj = -25000 CFj = 7000 shift Nj (orange) = 40 I = 7 shift NPV (orange) = $68,322

You and your spouse make $40,000 per year, and have the following joint debts: $150,000 mortgage $15,000 on auto loans $10,000 on student loans $5,000 on credit cards. You estimate funeral costs at $5,000 for each person. How much life insurance should each of you carry using the DINK method?

$95,000 =Total debt/2 + funeral costs $150,000 + $15000 + $10000 + $5000 / 2 = $90000 + 5000 = $95000

A UCF graduate has 3 bank overdrafts per year, and the bank charges $35 per overdraft. The bank pays the graduate 1% interest per annum, and he/she maintains an average monthly balance of $600. What is the graduate's net annual cost of maintaining the checking account after giving effect to the interest earned (ignore taxes)?

$99 net cost $35(3) = $105 Cash back- 600(0.01) = $6 $105 - $6 = $99 net cost

What is the annual cost per mile of operating a car given the following information? Annual miles driven: 11,800 Gas cost: Average miles per gallon- 24, Average cost of gas per gallon- $2.79 Annual depreciation: $2500 Interest: $650 Insurance: $680 License: $65 Repairs/oil: $370 Parking: $498

52 cents 1. Calculate gas Average cost of gas per gallon(Annual miles driven/average miles per gallon) $2.79(11800/24) = $1,371.75 2. Calculate cost per mile = (Gas cost + Annual Depreciation + Interest + Insurance + License + Repairs/oil + Parking) / Annual miles driven = ($1371.75 + $2500 + $650 + $680 + $65 + $370 + $498) / 11,800 = 52 cents

It's time for another financial calculator problem. A UCF student (who has not taken FIN 2100) decides that he really needs a large screen HD TV for football season. The student goes to a "rent to own" center and agrees to rent a TV for $60 per month (end of month). After 36 months, the student will own the TV. Assuming that the student could buy the same TV today for $1,000, what is the interest rate (APR) of renting the TV? (Hint: Think of this as a $1,000 loan today from the rental company paid back at $60/month for 36 months).

59% End mode 12 p/yr N = input 3 (36 months or 3 years) PMT = 60 PV = -1000 I = 59%

Be sure you review the sample problems found in the word doc in Module 9 before attempting the last three questions. A bank offers you a thirty year $150,000 mortgage at 6.5% with two points payable at closing. The monthly payment is $948.10. What is the effective interest rate on this loan?

6.7% 1. Find pmt end mode, p/yr = 12 PV = 150000 I = 6.5 N = 360 FV = 0 Pmt = ? Pmt = (948.10) 2. Adjust for points 150000(0.02) = 3000 150000-3000 = 147000 3. Find effective interest rate end mode, p/yr = 12 pmt = -948.102 PV = 147000 FV = 0 N = 360 I = ? I = 6.7%

Assume the following: Pre-tax return = 14.5% Tax rate = 25% Inflation rate = 4% What is your real return?

6.875% real return = (Pre-tax return*(1-tax rate)) - inflation rate (0.145*(1-0.25)) = 0.109 0.109 - 0.04 = 0.0688 = 6.875%

Most of the information in your credit file may be reported for only _________ years (if you have not declared bankruptcy).

7 years

Regarding potential changes in the Affordable Care Act (ACA), which of the following statements is FALSE according to the article? a. If subsidies are eliminated, fewer people will have insurance and markets would become unstable. The Urban Institute estimates that 22.5 million people might lose insurance. b. An estimated 12.9 million might lose Medicaid insurance and Republicans are discussing reforms to Medicaid that would give more autonomy to the states. c. Republicans would likely eliminate rules that require a minimum package of benefits, and the President would like change rules to allow insurance to be sold across state lines. d. More people will be moved to Medicare rather than private insurance in order to save money. e. Less contentious provisions of the ACA such as requiring restaurants to disclose calorie counts on their menus are likely to remain unchanged.

d. More people will be moved to Medicare rather than private insurance in order to save money.

Flexible Spending Account

-declare amount in fall -max 2500 -use it or lost it

Which of the following is true with respect to wills?

-If your state allows holographic wills, you don't need witnesses. -You must date and sign the will. -The will must be signed by at least two witnesses (for states that do not allow holographic wills). -In most states, witnesses can not be heirs.

An investor bought 100 shares of a stock for $28.00 per share plus a commission of $10. He/she sold the stock after two years for $38.00 per share and again paid a $10 commission. The investor received dividends while holding the stock of $0.50 per share per quarter (a total of eight quarters). What is the total gain and annual return on this stock? Hint: See supplemental slides at the end of Chapter 14 lecture.

$1,380 gain, 21.5% annual return. Find gain. 100 * $28 = $2800 + $10 = $2810 100 * $38 = $3800 - $10 = $3790 100 * $0.50 = $50 * 8 = $400 $3790 - $2810 + $400 = $1380 Find annual return End mode P/yr = 4 PV = -2810 (100 * $28 + $10) Pmt = 50 ($0.50 * 100) N = 8 (4 * 2 years) FV = 3790 (100 * $38 - $10) I = ? I = 21.5%

You have elected to deposit $130 per month in your flexible spending plan next year. Assuming a 35% tax bracket, how much in qualifying medical expenses would you have to incur to break even on your deposits to the flexible spending plan next year?

$1014 130 * 12 = 1560(1-.35) = $1014

An employee makes $120,000 per year and saves 7% of his/her salary in the company's 401-K plan. The company matches 4% of the salary when the employee saves up to 5%. Further, the employee pays $2,000 per year in health insurance premiums for a family health insurance plan from the employer. What will be the W-2 compensation for this employee?

$109600 W-2 income = Salary - 401-K Savings - Health insurance premiums - flexible spending account savings for out of pocket health care = 120000 - 8400 - 2000 = 109600

2019 Estate tax exemption

$11.4 million

For 2019, estates up to $____________ are generally not subject to federal estate taxes.

$11.4 million

A $1,000 corporate bond has a 9.5% coupon rate. Since issuance, interest rates have fallen for comparable bonds to 7%. What would be the market value of the bond now that interest rates have fallen (i.e. what would you have to pay for this bond today in order to achieve the same yield)?

$1357.14 $1000(0.095)= $95 $95 / 0.07 = $1357.14

2019 gift tax limit

$15,000

load fund

-Known as an A share -Include fees up to 6% -Frontend -Backend

Taxes and life insurance

-Life insurance proceeds tax exempt but included in taxable estate -Life insurance premiums are not deductible

What is the present value of $6.00 (six dollars) deposited at the end of each week for 6 years earning 7.5% interest?

$1506.61 end mode 52 p/yr PMT = -6 N = 6 I = 7.5 PV = ? PV = $1506.61

Recent trends

-More money to passive (index) investing and out of active investing. Active managers can't beat indexes. Ex: S&P 500

ABC Corp. has earnings of $300,000,000 with 150,000,000 shares outstanding. ABC's earnings per share would be_______?

$2.00/per share Earnings per share = earnings/share $300,000,000/150,000,000 = $2

Section 529 plan

-Plans May Not Be Best for saving for college --Fees can be high --Limited investment options

Assume you have 50/100/25 coverage in your auto insurance policy (a standard non-stacking policy). Assume you were at fault in an accident, and two injured parties were awarded the following damages: Person 1: $75,000 Person 2: $25,000 What would your financial liability be in this case (i.e. the amount not insured)?

$25,000 Person 2 is covered, but you can only pay $50000 to each individual so Person 1 has 75000 75000 - 50000 = 25000

The FDIC and NCUA insure non-retirement accounts in banks, savings & loans, and credit unions for up to__________:

$250,000

What is the future value of $2,500 deposited at the end of each quarter year for 15 years earning 8% interest?

$285,128.85 end mode 4 p/yr PMT = -2500 N = 15 I = 8 FV = ? FV = $285,128.85

What is the AFTER TAX value of a $5,000 taxable benefit, assuming a 24% marginal tax rate? (Note that if your employer provides you with a car, the personal use of the car will be added to your W-2, and you will have to pay taxes, thus cars are a "Pre-tax" benefit).

$3,800.00 After-tax benefit value = Pre-tax benefit*(1-tax rate) = $5000(1-.24) = $3800

pe ratio

-Price of one share of stock divided by the earnings per share of stock over the last 12 months -A low PE ratio means a stock could be a good investment, or a slow growth company -A high PE ratio implies higher growth, and potentially higher risk

What is the future value of $1,800 invested today at 18% interest in 30 years with interest compounded quarterly?

$354,182.71 end mode 4 p/yr PV = -1800 I = 18 N = 30 FV = ? FV = $354,182.71

You buy 100 shares of a mutual fund for $10 per share at the beginning of the year. The fund subsequently makes a $0.75/share dividend distribution. At year-end, the fund is worth $13 per share. What is the total return on your investment?

$375 or 37.5% 100 * $10 = $1000 0.75 * 100 = $75 100 * $13 = $1300 $1300 + $75 - $1000 = $375

ACA provisions and taxes

-Reduces hidden tax on insured Americans -Improves American's health -Protects savings -Enhances productivity -Govt. subsidies for those who can't afford it

Assume the following information for a car note: Original loan amount = $24,000 Annual interest rate = 5.60% Term of loan = 72 months How much principal and interest was paid in year four, and what is the principal balance on the loan after four years?

$4,094.61 of principal; $624.15 of interest; balance due $8,908.84 end mode 12 p/yr PV = 24000 I = 5.6 SHIFT N = 6 FV = 0 HIT PMT SHIFT AMORT until you get to 4 years EQUAL 3 times until you see prin, interest, and balance PRINCIPAL = $4094.61 INTEREST = $624.15 BALANCE = $8908.94

A UCF graduate is offered a salary of $36,000 in the year 2019 and expects to receive 3% raises each year. What would be his/her salary in 2024? (Round to the nearest dollar, this is a future value of a single sum TVM problem)

$41,734 End Mode 1 P/Yr PV = -36000 N = 5 I = 3 FV = $41734

AGI = 100,000 Medical expenses = 15000 How much can be deducted on Sch A? Use 10% limitation

$5000 =Expenses - AGI(Limitation) =15000 - 100000(0.10) =5000 Expenses must exclude flexible spending or health savings reimbursements

A UCF graduate has $110,000 of adjusted gross income and $11,500 of qualifying medical expenses. This individual's itemized deductions for medical expenses on Schedule A for 2019 (where the limitation is 10%) would be:

$500 = Medical expenses - AGI * limitation = 11500 - 110000*0.10 = $500

A UCF graduate is earning $44,000 a year in Orlando, and has an offer to move to a city where the cost of living is 18% higher. What would be the minimum salary this graduate would need to maintain the same standard of living?

$51920 = Salary * cost of living percentage + Salary = $44000 * 0.18 + 44000 = $51920

A $1,000 bond carries a 7.0% coupon. The bond currently trades at $1,100. What would the annual interest payment be on this bond?

$70 $1000 * 0.07 = $70

A student has two credit card offers. Credit card "A" has an 19% per annum interest rate with no fee, while credit card "B" has an 12% per annum interest rate with a $50 annual fee. If the student maintains an average balance at month end in excess of $______, he/she should select the card "B" which has a lower rate with an annual fee. (i.e. what is the break-even point?)

$714.29 19% - 12% = 7% = 50/7% = 714.29

What is the present value of $11,500 received 9 years from now using a 5% interest or discount rate, with interest compounded monthly?

$7339.58 end mode 12 p/yr FV = -11500 N = 9 I = 5 PV = ? PV = 7339.58

A UCF graduate makes $750 per week and has a disability plan that pays 70% of his/her salary after the first four weeks of disability. If the graduate is disabled for 18 weeks, how much will he/she receive from the insurance company?

$7350 18 - 4 = 14 14(750) = 10,500 10,500(0.7) = 7350

Flexible spending $1000 saved at 25% tax rate Break-even?

$750 = $1000(1-tax rate) = $1000(1-.25) = 750

A UCF grad has gross monthly income of $3,200 and net take home pay of $2,900 per month, which approximates his/her monthly living expenses. What is the minimum amount should have in his/her emergency fund?

$8,700 3 month minimum salary emergency fund =take home pay * 3 = $2900(3) = $8700

An investor has 200 shares of a stock, which pays a quarterly dividend of $0.40 per share. What is his/her quarterly dividend payment?

$80 $200 * 0.4 = $80

Historical returns

-Stock 10-12% --40% dividends, 60% capital gains -Bonds 5-6% --almost all from income yield (interest) -REITs 10-12%

If a student has a net worth of $50,000 and liabilities of $40,000, what are his/her total assets?

$90000 Assets = Liabilities + Net Worth

prenups

-Waive rights to each other's property that was acquired beforethe marriage -Agree on a settlement if you should divorce/alimony -Used for estate planning

power of attorney

-delegates legal authority from one person "principal" to another "agent" -Requires principal's signature plus two witnesses and a notary in FL

What important matters should you always assess before changing jobs?

-Your current vesting status on the company stock option plan. -Your current vesting status on the company 401-K plan. -Your current vesting status on the company defined benefit pension plan.

Equity Risk Premium

-also known as excess market return, is the additional return investors receive by investing in higher risk stocks vs. risk free investments such as Treasury -4-5% historically over treasuries

cost basis

-average cost allowed -identify lots

How do we measure the risk of a stock?

-betas -perfect correlation beta = 1.0 -high risk beta > 1.0 -low risk beta < 1.0

What happens to bond prices when rates increase?

-bond prices go down -discount bond -cur. yield < YTM

What happens to bond prices when rates fall?

-bond prices go up -premium bond -cur. yield > YTM

REITs Pros

-A hedge against inflation -Financial leverage --Use of borrowed funds for investment purposes, allows you to acquire a more expensive property than you could own on your own and leverage your returns -Limited financial liability -No management concerns

Buying and Selling Stocks: Secondary market

-A market for existing financial securities that are currently traded among investors (NYSE/Nasdaq) -Most stocks traded in secondary market

Buying and Selling Stocks: Primary market

-A market in which an investor purchases financial securities via an investment bank, or other representative, directly from the issuer of those securities -An investment bank is a financial firm that assists corporations in raising funds usually by helping to sell new security issues -An IPO occurs when a corporation sells stock to the general public for the first time

trust

-A trust is a legal arrangement through which a trustee holds assets for your benefit or that of your beneficiaries (before or after death) -Manages your property, distributes assets to heirs -All assets are taken out of your name and put in the name of the trust (keeps private) -Benefits of trusts: Reduce estate taxes, avoid probate, free you from managing assets, and provide income for a surviving family

12b-1 fees

-Annual fee to defray advertising and marketing costs of the fund and payments to brokers selling funds -known as B shares

Qualified Domestic Relations Order (QDRO)

-Avoids tax resulting from split of retirement assets -Must have written agreement of spouses -Covers pensions/401-K, not IRA -Falls under ERISA, thus overrules pre-nuptial and state divorce laws -It's generally best to rollover your share of 401-K, cashing out will result in large tax bill

How much should I have invested in stocks?

-Be sure you have a hedge against inflation by investing in stocks -One rule of thumb for long term stock savings: 110 minus your age = stock % For a 20 year old = 90% stocks For a 60 year old =50% stocks

Call feature of corporate bonds

-Corporation can call in or buy back outstanding bonds from current bondholders before the maturity date -Most agree not to call bonds for the first 5 to 10 years after they are issued -They call bonds if the interest rate they are paying you is much higher than the going rate -Most corporate bonds and municipal bonds are callable

fund expense ratios

-Cover the cost of running the fund and paying managers -Costs tend to be higher on managed funds -Buy and selling requires commissions -All things being equal, if one fund has a cost structure that is 1% lower than another fund, it will have a 1% higher return -The most important variable in predicting future mutual fund performance is the expense ratio!

REITs Cons

-Direct investment risks --Illiquidity --Lack of diversification -Declining property values -Lack of a tax shelter for real estate syndicates/partnerships -Long depreciation period -Management problems

Government Sponsored Entities (GSE)

-Essentially default risk free but earn higher interest than treasury options -Issued for 1-40 years with 15 years the average -Fannie Mae (Federal National Mortgage Association) -Ginnie Mae (Government National Mortgage Association) -Freddie Mac (Federal Home Loan Mortgage Corporation)

Essentials of buying a house

-Figure out what you can afford -Start saving for a down payment -Select a house and make an offer -You need a mortgage (and good credit) --Fixed or variable mortgage --Closing costs --Private mortgage insurance -Your monthly costs now include property taxes and homeowners insurance

federal estate tax often avoided through

-Gift tax exclusions -Unlimited charitable bequests -Use of trusts -Heirs receive a step up in basis

Health Savings Account

-high deductible plan -high cost to participant if sick -contributions carry over if not used and can be invested

Annuity payments

-interest taxed at marginal rates -principal not taxed -annuities from 401-K are 100% taxable

dollar cost averaging

-investing roughly equal amounts of money at regular intervals -mitigates market volatility

Market Capitalization

-is the value of the common stock (current share price times shares outstanding) -Company size impacts risk and growth prospects -A stock price is NOT indicative of the market cap

Step up in basis

-living will -health care surrogate -trust (various)

REITs

-must distribute 90% of income (higher yields) -non qualified dividends -provide equity type returns -equity and mortgage REITs

Unsystematic risk

-sometimes called specific risk, idiosyncratic risk, residual risk, or diversifiable risk, is the company-specific or industry-specific risk in a portfolio, which is uncorrelated with aggregate market returns. -Unsystematic risk can be mitigated through diversification, and systematic risk can not be.

non-systematic risk

life insurance `

-tax free to beneficiary -included in taxable estate

systemic risk

-the risk of collapse of an entire financial system or entire market, as opposed to risk associated with any one individual entity, group or component of a system. -It can be defined as "financial system instability, potentially catastrophic, caused or exacerbated by idiosyncratic events or conditions in financial intermediaries". -It refers to the risks imposed by interlinkages and interdependencies in a system or market, where the failure of a single entity or cluster of entities can cause a cascading failure, which could potentially bankrupt or bring down the entire system or market.

Circle each of the following life insurance policies that would build "cash value".

-whole life -variable life -universal life

Options points

0 points is 4.6% 1 point is 4.3%

Buy 100 shares at $50. Pays dividend of $0.25/share each quarter. Hold for 2 years, sell at $60. 1. What is the dividend yield? 2. What is total return?

1. 2% $0.25 * 4 = $1/yr $1/$50 = 2% 2. 11.07% end mode, pmt/yr = 4 PV = -5000 (50*100) Pmt = 25 N = 2*4 = 8 FV = 6000 (60*100) Int = ? Int = 11.07

Pay $950 for a $1000 bond with 6% coupon due in 10 years. Payments made semiannually. 1. What is current yield? 2. What is yield to maturity (YTM)?

1. 6.32% 1000*0.06/950 2. 6.69% End mode, pmt/yr = 2 PV = -950 Pmt = 30 (1000*0.06)/2 N = 10*2 = 20 FV = 1000 I = ? I = 6.69%

An investor bought a stock for $40 per share. It now trades for $60 per share and pays an annual dividend of $1 per share ($0.25 per quarter). What is the current dividend yield on this stock?

1.67% Dividend yield = annual dividend / current price per share 1/60 = 1.67%

Fidelity Investments recently recommended that individuals save at least _____ years of their final salary before retiring.

Prepayment XM Sirius radio, pay $20/month (end) for 2 years or 10% discount to pay today what is the interest rate?

10.32% $20(24 months) = 480 480(.1) = 48 480 - 48 = 432 end mode, p/yr = 12 PV = (432) Pmt = 20 N = 24 I = ? I = 10.32

A $1,000 bond has an annual 9.0% coupon and trades for $870. It has 10 years to maturity. What is the current yield and yield to maturity?

10.34% yield with a 11.23% yield to maturity. Yield to maturity end mode, p/yr = 1 N = 10 PV = -870 Pmt = $90 ($1000 * 0.09) FV = 1000 I = ? I = 11.23% Yield $1000 * 0.09 = 90 90/870 = 10.34%

A Harvard prof. gave this problem to 400 Harvard employees (many of whom had advanced degrees) and 250 Wharton MBAs. Most got the answer wrong, so let's see how you do. You have $10,000 to invest in your 401-K plan. Here are your only choices: Morgan Stanley S&P 500 Index Fund Vanguard S&P 500 Index Fund Schwab S&P 500 Index Fund Fidelity S&P 500 Index Fund All four funds have the same one year, three year and five year returns. "Life of fund returns" for each fund are as follows: Morgan Stanley = 12.5% Vanguard = 11.9% Schwab = 13.2% Fidelity = 14.9% Annual fees for each fund are as follows: Morgan Stanley = 36 basis points Vanguard = 10 basis points Schwab = 25 basis points Fidelity = 27 basis points What is the best way to invest the $10,000?

100% in Vanguard

What do each of these numbers represent in an auto insurance policy: 100/300/50

100,000 is the maximum that would be paid to one individual in an accident 300,000 is the maximum that would be paid for all claims in a single accident (incident) 50,000 is the maximum property damage that would be paid for an accident

ABC fund has a 4.5% front-end sales load and a net asset value of $40. You plan to invest $20,000. How many more shares would you have received if the fund did not have a sales load?

22.5 20,000 * 0.045 = 900 900/40 = 22.5

Experts advise that your debt payments to take home pay ratio should not exceed 20%. A homeowner has the following monthly income and expenses: Item Value Gross salary $2,000 Taxes/social security $ 300 Visa card payments $ 35 Mastercard payments $ 30 Discover card payments $ 20 Auto loan payments $ 300 What is the homeowner's "debt payments to take home pay" ratio?

22.6% Debt payments to income ratio = monthly payments / monthly after tax income = (300 + 20 + 30 + 35) / (2000-300) = 385/1700 =22.6%

Assume the following mutual fund transactions: Year: 2007, 2008, 2009, 2010 Invest: $3000, $3000, $3000, $3000 Price per share: $40, $50, $60, $53 How many shares do you now own and what is the average cost per share?

241.6038 shares with an average cost per share of $49.67 Total Shares 3000/40 = 75 3000/50 = 60 3000/60 = 50 3000/53 = 56.6038 75 + 60 + 50 + 56.6038 = 241.6038 Average cost per share 3000 * 4 = 12000 12000/241.6038 = $49.67

Flexible spending $1000 saved at 25% tax rate Tax saved?

250 1000 * 0.25 = 250

If you have $12,000 today, and save $750 per month at the beginning of the month while earning an annual interest rate of 7%, how many months would it take to accumulate $500,000?

257 end mode 12 p/yr PV = -12000 PMT = -750 I = 7 FV = 5000000 N = ? N = 257

A UCF graduate has $8,000 of debt excluding her house and a net worth of $30,000 ($24,000 excluding her house). What is the graduate's debt to net worth ratio exclusive of the house? Experts say the ideal target ratio should not exceed 1 (100%).

33.3% Debt to Equity Ratio = total liabilities / net worth = 8000/24000 = 33.3% note: exclude the house

Knight Corp.'s stock trades at $120. It has a book value of $15 per share and earnings per share of $3.00. What is the PE ratio for Knight Corp.?

40 PE ratio = Cost per share/earnings per share $120/$3 = 40

Break even simple payback $3000 closing costs, save $75/month by going to refinanced rate of 4%, 30 year mortgage

40 months to break even 3000/75 = 40 months Simple payback does not consider the lost interest on your money, and will always be a lower number than TVM breakeven, which includes the time it takes to get your money back with interest

Break even TVM $3000 closing costs, save $75/month by going to refinanced rate of 4%, 30 year mortgage

43 months to break even End mode, p/yr = 12 PV = (3000) Pmt = 75 I = 4 N = ? N = 43 months

Medium term notes generally have maturities of?

5-12 years

Municipal bond with 4% coupon, par = 1000. What is pretax equivalent yield rate if bond trades at $980 assuming 28% tax rate?

5.67% 1000*0.04/980 = 4.08% tax free yield 0.0408/1-.28 = 5.67%

Zero % Financing $28000 car at 0%, 48 months, or $3000 rebate

5.67% end mode, p/yr = 12 PV = (25000) etc. 28000-3000=25000 Pmt = 28000/48 = 583.33 N = 48 I = ? I = 5.67

What is the equity risk premium for small company stocks given the following assumptions: Return on small company stocks = 11% Return on Treasury bonds = 5% Inflation rate = 3%

6% Equity Risk = Company stocks - Int. Gov. Bonds 11% - 5% = 6%

Auto Lease Lease $19000 car for 36 months. Pay $275/month. Residual value $12000. What is the interest rate?

6.16 End mode, p/yr = 12 PV = $19000 Pmt = (275) N = 36 FV = (12000) I = ? I = 6.16

What is the implicit rate of interest in the following "zero percent financing" deal: New car cost = $20,000 with 36 months of payments at 0% interest OR Receive a $2,000 cash rebate (i.e. pay $18,000) and either pay cash or provide your own financing.

6.97% End Mode Pmt/yr = 12 PV = 20,000-2000 or 18,000 Pmt = 20,000/36 or 555.56 (input as a negative) FV = 0 N = 36 I = 6.97%

You have been given a choice of paying $20,000 for a new GM car with a $3,000 cash rebate (net cost of $17,000 which you finance separately), or zero percent financing for 48 months with no cash rebate. What is the implicit rate of interest in this deal?

8.21% Step 1: Find the payment =Cost of item / length of financing = 20000/48 = 416.67 Step 2: Find the implicit rate of interest End mode p/yr = 12 PV = (17000) Pmt = 416.67 N = 48 FV = 0 I = ? I = 8.21%

Refer to the CNN Money on Life Insurance 101. What percentage of the first year premiums on a whole life insurance policy go to the agent's commission?

80%

Equity securities for long term savings (stocks)

= 110 - age

Life Insurance- Simple/easy method

= Salary * 5

After tax

= pretax(1 - tax rate)

Your father gives you 100 shares of ABC stock on Dec. 31, 2006. He paid $2,500 for the shares ($25/share) in 1990 and the stock is now worth $3,500 as of the date of the gift. On Dec. 31, 2018, you sell the ABC stock for $4,500 ($45/share). What is your taxable gain?

A $2000 long term capital gain

A UCF graduate has a traditional IRA and plans to take the money out prior to age 59 ½ in order to pay off some accumulating credit card debt. The graduate will pay:

A 10% penalty on the total withdrawn, plus will owe taxes on the amount withdrawn based on his/her marginal tax rate.

Zero coupon bonds would be best suited for

A 35 year old woman with a high risk tolerance and no need for current income.

Which investment would generally be INAPPROPRIATE for a 25 year old with a traditional IRA invested for his/her retirement?

A substantial and permanent investment in money market mutual funds

Investment grade ratings

AAA, AA, A, BBB

How much life insurance would you need using the easy method for a family with $90,000 in gross income?

About $450,000 easy method = 4.9(income) 4.9(90000) = 441,000 so about $450000

capital loss limit

All net gains taxed, losses limited to $3,000

Which of the following monthly payments go to an escrow account? a. principal b. interest c. property taxes d. homeowners insurance e. Answers c and d are correct

Answers c and d are correct c. property taxes d. homeowners insurance

Assessed vs Appraisal Value

Appraised- true value of house based on appraisal Assessed- tax appraiser adjusts value of house to assessed value used for property tax purposes slightly lower than appraised value

With respect to federal tax law, life insurance proceeds paid to a beneficiary:

Are excluded from taxable income, but included in the taxable estate (unless a life insurance trust has beenestablished)

Which of the following statements is true?

Bonds may be purchased in either the primary or secondary market.

premium bonds

Bonds trading above par

discount bonds

Bonds trading below par

Real estate agent commissions are generally paid by the buyer.

False

Service warranty contracts are generally considered good deals.

False

Payments made to a fund's shareholders that result from the sales of securities in the fund's portfolio are called

Capital gains distributions (either short term or long term)

Initial Public Offering (IPO)

Companies issuing shares in the primary market for the first time, typically a highly prized investment (e.g. Google)

Which best describes cash dividends paid by corporations?

Dividends generally come from after-tax earnings of the corporation, and qualifying dividends are taxed again when received by an individual at lower rates (generally 15% for most taxpayers).

A homeowner has 25 years remaining on his/her mortgage. The homeowner can save $50 per month for the next 25 years by refinancing at a lower rate of 6%. If closing costs run $5,000, is this a good deal (hint: compare the PV of the savings to the closing costs)? How long would the homeowner have to stay in the house to make this a good deal (calculate using TVM)?

End Mode Pmt/yr = 12 Pmt = 50 N = 25 x 12 I = 6 PV = 7,760.34 verses 5,000 in closing cost End Mode Pmt/yr = 12 Pmt = 50 PV = (5000.00) Interest = 6 N = 139 Simple payback = 5000/50 = 100 months

Most group health policies have a coordination of benefits provision, which is a method of integrating the benefits payable under more than one health insurance plan so that benefits are limited to no more than 200% of allowable expenses (e.g. if you and your spouse each have health insurance which covers each other, then you can collect no more than twice the claim since you each are paying premiums).

False

The cost of long term care, such as a prolonged stay (greater than 100 days) at a nursing home, is

Generally not covered by Medicare

In the event that an individual believes that interest rates are likely to move UP in the next year or two, what actions should he/she take?

Invest short (such as short term CDs); borrow long term at fixed rates

Which health insurance plan is administered by each state within certain broad federal requirements and guidelines?

Medicaid

Assume you receive the following mortgage: Amount borrowed = 175,000 Annual interest rate = 6.5% Term = 30 years What is the monthly payment and how much of the payments in year 5 go toward interest?

Monthly payment = $1,106.12 Interest in year 5 = $10,738.39 Monthly payment- end mode, p/yr = 12 PV = -175000 FV = 0 I = 6.5 N = 360 Pmt = ? Pmt = 1106.12 Interest in year 5 Keep pmt up, shift amort 5 times, hit = until you get to interest and you get $10,738.39

What is the Net Present Value (NPV) and internal rate of return (IRR) of spending $550 today on an energy efficient appliance which will save you $125 a year for the next five years assuming you could invest this money elsewhere and earn 15%?

NPV = ($130.98); IRR = 4.4% end mode 1 p/yr CFj = -550 CFj = 125 SHIFT CFi = 5 I = 15 SHIFT PRC (NPV) = ? NPV = $130.98 SHIFT CST (IRR) = ? IRR = 4.4

Which life insurance provision ensures that you will not have to forfeit all accrued benefits?

Non-forfeiture clause

You plan to invest $100 per month in an S&P 500 index fund for the next 40 years, and are trying to decide whether to use an ETF or an open ended mutual fund. Which option would be the most advisable? (assume that the ETF and open ended index mutual fund have the same expense ratio, but the broker will charge you a $5 commission for each trade, while the mutual fund will not charge you a commission if purchased directly from the mutual fund)

Opening an account with a mutual fund family, then investing in an open ended S&P 500 index mutual fund each month.

What does PITI stand for, and which of these four items are "escrowed" each month?

Principal & interest (paid to the mortgage company), property taxes (escrowed) and homeowners insurance (escrowed)

ACA

Provides affordable coverage for Americans without insurance due to pre-existing conditions (PEC) -Individuals will have choices through Exchanges -Public option to compete with private plans -Subsidies for low income families -Stops insurance companies from limiting care -Removes barriers between you and your Dr. -Select any primary care Dr. in network -See OB-GYN without referral -Individual and small group insurers must spend 80-85% on direct medical care -Children under 26 may stay on parent's plan (previously was 24)

Which type of trust would be used for young adult children, where the deceased parents wish to ensure that the principal of the trust is maintained for a long period of time?

a spendthrift trust

YOU JUST WON THE LOTTERY!!!! In case you didn't know, lottery winners are immediately faced with a present value of an annuity problem, which you are now trained to solve. Assume you won $20 million in the lottery. You are given the option of receiving twenty $1,000,000 annual payments, with the first payment due TODAY, or taking a $13.5 million lump sum TODAY. You want to compare the PV of the annuity to the lump sum to see which is better. What is the PV of this annuity assuming you can invest the money at a 5.5% annual rate and which option is best?

The PV is $12,607,654; take the lump sum. beg mode 1 p/yr PMT = -1000000 I = 5.5 N = 20 PV = 12,607,654

Rank the following from most expensive health plan to least expensive.

a. PPO b. POS c. HMO d. HDHP

Over the long term, which form of investment has yielded the highest returns? a. Stocks b. Corporate bonds c. Government bonds d. Money market accounts

a. Stocks

What happens if you die without a will and there are many close by relatives?

The courts will determine how your assets will be distributed based on state law.

An investor has 350 shares of a stock, which just declared a 2 for 1 stock split. On the day before the stock split, the shares were trading at $80 per share. The day after the split,

The investor will have 700 shares trading at around $40 per share. 350 * 2 = 700 shares $80/2 = $40

A parent is evaluating a $250,000 term life policy vs. a $250,000 whole life policy. Over the next 25 years, the term policy will cost $10 month, and build no cash values. The insurance agent informs the parent that the whole life policy will cost $100 per month, but will build guaranteed cash values of $75,000 at the end of 25 years. The parent assumes that he/she can invest the $90 per month difference in a mutual fund and earn 10% per year for the next 25 years. What is the future value of the mutual fund at the end of 25 years assuming end of the period deposits of $90 per month at a 10% interest rate; and how does it compare to the whole life cash value investment return (ignoring taxes)?

The mutual fund return will be worth $119,415.01, implying that the return on the whole life policy is less than 10%. end mode p/yr = 12 Pmt = -90 I = 10 N = 25 FV = ? FV = $119,415.01

A money market mutual fund that invested in commercial paper issued by corporations would generally be considered a low risk investment. True or False

True

Individuals should generally be careful when considering financial advice from those in the financial services industry since often times there can be a conflict of interest.

True

The slope of the treasury yield curve normally reflects increasing interest rates over time, and represents the cost of borrowing for the US government. True or False.

True

A UCF graduate saves $475 at the end of each month in a Roth IRA for 40 years (retirement date), earning 8% annually. How much money will be in the account at the end of 40 years, and how long will the money last if the graduate withdraws $15,000 at the end of each month at the retirement date, assuming the investments continue to earn 8% annually? HINT: Once you calculate the FV of the savings, this will be your PV for the second part of the problem where you solve for n.

Value of account in 40 years = $1,658,229: Account will run out of money in 201 months. End mode, 12 p/yr Pmt = 475 N = 40(12) I = 8 Fv = ? FV = 1,658,229 End mode, 12 p/yr PV = 1,658,229 FV = 0 Pmt = -15000 I = 8 N = ? N = 201

stock cost basis allowed

What you paid including commissions -FIFO, first in first out (normally used) -specific lots identified --lifo, last in first out --hifo, highest cost in first out

Calculate the first and second year ANNUAL payment that you could withdraw for a "growing annuity" using the following assumptions: Interest rate = 8% Inflation rate = 3% Remaining life expectancy = 25 years Amount invested at retirement date = $650,000 First withdrawal taken at the end of the year. Hint Real Rate: ((1 + interest rate) divided by (1 + inflation rate)) - 1. Round real rate to two decimal places.

Year 1 = $45,428 Year 2 = $46,791 Real rate = (1 + NOMr)/(1 + INFr) - 1 1.08/1.03 - 1 = 0.0485 end mode, 1 p/yr PV = 650000 FV = 0 N = 25 I = 4.85 Pmt = ? Pmt = 45,428 Pmt next year = 45428(1.03) = 46791

You subscribe to Sirius XM Radio and pay $12 at the end of each month (which equates to $144 per year). You plan to keep this service for the next five years. Assume you have plenty of cash in your emergency reserve fund, which is in a bank account earning 4% interest per annum. XM Radio offers you a deal whereby you can prepay two years worth of service for $230, payable today. Given these assumptions and relative to the interest you will earn by keeping the money in interest bearing bank account.

You are better off to prepay XM for the next two years. end mode p/yr = 12 PV = -138.24 Pmt = 12 N = 12 FV = 0 I = 7.604% accept prepay if you are investing money at a lower rate and have enough cash, since you are investing 4% and thats lower than 7.604%, accept prepayment

When you sell shares of a mutual fund, how do you determine the basis of the shares held?

You may use either the specific identification or average cost method.

long term capital gain

a gain on assets that were held for 12 months or longer

short term capital gain

a gain on assets that were held less than 12 months

What document is generally used to name the guardian of your minor children in the event that both you and your spouse should die?

a last will and testament

limit order

a request to buy or sell a stock at a specified price or price range

market order

a request to buy or sell stock at the current market value

stop order

a request to sell a stock at the next available opportunity after its market price reaches a specified amount

Which of the following statements is TRUE? a. Rental income is taxed as a long-term capital gain b. The holding period for short-term capital gains is 12 months (1 year) or less c. It is not necessary to monitor the value of your investments if you hire a financial planner d. The holding period for long-term capital gains is 12 months (1 year) or more.

b. The holding period for short-term capital gains is 12 months (1 year) or less

coupon

is stated interest rate to be paid = current interest rates; bond at PAR ($1000)

Market Cap: Small Cap

less than $2 billion

equity REITs

malls, office buildings, apartments

Cost per mile

miles driven/mpg = gallons gallons * gas price per gallon = gas cost gas cost + any other costs = total cost total cost / miles driven = cost per mile

mortgage REITs

mortgages backed by commercial real estate

A bond that provides federally tax-free interest income is called a

municipal bond

An investor who wants tax free investment income would choose a (an) _______ fund

municipal bond

Systematic risk

nsometimes called market risk, aggregate risk, or undiversifiable risk, is the riskassociated with aggregate marketreturns.

Renter's property insurance would include coverage for:

personal belongings

Trusts can be

revocable or irrevocable

Systemic risk

risk of financial collapse

market cap formula

shares outstanding * price per share 300 million shares outstanding x $20/share or $6 billion

systematic risk

sometimes called market risk, aggregate risk, or undiversifiable risk, is the risk associated with aggregate market returns.

Under Florida law, if you do not name in a living will whom you want to be in charge of your end of life decisions (like pulling the plug), then:

the state of Florida will decide

Which of the following is NOT required to obtain your free credit report? a) your name and address b) your social security number c) your date of birth d) your credit card number e) all the items listed are required

your credit card

A homeowner paid $75,000 for his/her house and after several refinancings now owes $140,000 on the mortgage. The house is currently worth $200,000. A bank will provide home equity loans up to 80% of the value of the house. What is the maximum amount the homeowner could borrow on a home equity loan?

$20,000 200000(0.8) = 160000 160000 - 140000 = 20000

What amount would a person with actual cash value coverage receive for four year old furniture that was destroyed by a fire? Assume the furniture has a $4,000 replacement cost today and an estimated life of 10 years.

$2400 Replacement cost - depreciation 4000 - 1600 = 2400

If a buyer has a gross monthly income of $8,500, student loans of $150/month, and car payments of $250/month, what is the maximum monthly PITI loan he or she could get if the lender has set a total debt ratio of 38%?

$2830 Total debt ratio = (PITI + LMO) / GMI 0.38 = (PITI + 250 + 150) / 8500 3230 = PITI + 400 PITI = 2830

You are shopping for a TV, and three stores carry the same model for $300 each. Each store charges 18% interest per annum, has a 30 day grace period, and sends out their bills on the first of the month. Each store calculates the finance charge using different methods: Store A Average daily balance method Store B Adjusted balance method Store C Previous balance method Assume you bought the TV on May 5, and made one payment of $100 on June 15. What is the cost of financing with Store B in the month of June?

$3.00 18%/12 = 1.5% $300 - $100 = $200 200 * 1.5% = $3

$3.75 18%/12 = 1.5% $300 - $100 = $200 due by end of month so, half way through grace period would be around $250 250 * 1.5% = $3.75

Assume you drive 12,000 miles per year and that regular gas will cost $2.25/gallon and that premium gas will cost $0.30/gallon more than regular gas. What is the annual difference in gas cost for the following two vehicles? Car 1: 30 miles per gallon on average with regular gas Car 2: 25 miles per gallon on average with premium gas

$324 per year = cost per gallon(miles per year/ miles per gallon) Car 1: $2.25(12000/30) = $900 Car 2: $2.55(12000/25) = $1,224 $1224 - $900 = $324 per year

If you finance a car with a dealer, most likely you'll pay interest calculated with the "add on interest" or "tack on interest" method (which not surprisingly works in the favor of the dealer). During the life of the loan, interest is paid on the full amount borrowed, even though some principal is paid back each month. A student buys a car as follows: Down payment - $ 2,000 Amount financed - $ 12,000 Total cost of car - $14,000 Finance charge - Add on interest @ 10% per annum over 4 years (48 months) What is the monthly payment and APR of this loan using your HP 10BII?

$350/month with an APR of 17.6% Total Interest = Loan x 10% x 4 years = 4800 Loan interest = (loan + interest) / 48 months loan interest = 12000 + 4800 / 48 = $350 end mode 12 p/year PV = -12000 PMT = 350 N = 4 (48 months) FV = 0 I = ? I = 17.6%

$4.50 $300 * 1.5% = 4.50

Using a UCF graduate's current year tax data below, what is the adjusted gross income: Wages = $55,000 Ordinary dividends = $1,000 Interest on municipal bonds = $2,000 Traditional IRA contribution = $3,000 Short term capital gain = $ 9,000 Alimony paid = $20,000 (pre 2019 divorce)

$42000 AGI = Wages - alimony - IRA contributions + dividends + short term capital gain AGI = $55000 - 20000 - 3000 + 1000 + 9000 AGI = $42000

A student borrows $500 for one year, and is charged $50 in interest. He/she also pays a fee of $10 for the loan. What is the total cost of financing and the APR?

$60 financing cost with a 12% APR Financing cost = interest + fee = 50 + 10 = 60 APR = financing cost / borrowed amt = 60/500 = 12%

You currently are spending $80/year renting a pressure washer to clean your house. The cost of a new pressure washer is $800. If you bought the pressure washer, how many years would it take to obtain full payback on your original investment relative to renting (use a simple payback calculation). Note: Simple payback is a useful, but simplistic way to evaluate a purchasing decision that does not consider the time value of money. A quick payback implies a better deal, while a slower payback is not as good.

10 years simple payback = cost of the product/ annual savings $800/$80 = 10 years

In general, experts advise that one must save _______ of your salary in order to have sufficient funds to maintain your standard of living in retirement (this % would include both your 401-K savings and the employer match and other savings).

10-15%

Under the rules of COBRA, how long can you continue medical coverage if your employer has more than 20 employees?

18-36 months

This question is based on a true story. A Navy petty officer needs cash and goes to a paycheck advance company for some money. He/she agrees to pay $560 in two weeks (when his/her paycheck arrives) in exchange for $500 today. What is the interest rate implicit in this loan? Hint: This is a TVM problem, and the payments per year should be listed as 365, with n = 14.

297% end mode PV = -500 FV = 560 N = 14/365 I = ? I = 297%

A homeowner plans to refinance his/her house. He/she will pay $1,880 to refinance, and the mortgage payment will drop by $65/month. The term of the new mortgage is 20 years. The new interest rate is 5.25% Using TVM break-even, how many months must the homeowner stay in the house to break even on the refinancing?

31 months end mode p/yr = 12 PV = (1880) FV = 0 Pmt = 65 I = 5.25 N = ? N = 31

With respect to the taxability of corporate dividends paid to individuals and capital gains on stocks and bonds,

Both dividends from corporations and capital gains are taxable to individuals

Which of the following is not one of the five Cs of credit?

Climate

Assume the following: Assets = $110,000 Liabilities = $87,500 Net Worth = $35,000 Monthly credit payments = $1,640 Monthly take home pay = $8,200 What is the debt ratio and debt payments ratio for this individual?

Debt ratio = 2.5 Debt payments ratio = .20 Debt ratio = Liabilities/net worth Debt ratio = $87500/$35000 Debt ratio = 2.5 Debt payments ratio = monthly credit pmts / take home pay Debt payments ratio = $1640 / $8200 Debt payments ratio = 0.20

What is the first step in the financial planning process?

Determine your current financial condition

You just received a copy of an email from an unknown investment advisor to a client recommending the purchase of a stock. The email appears to have been sent to you by mistake. The stock trades for $1.37/share and you could easily afford to buy 300 shares. The broker believes that the company will announce some significant positive news in the near future that will cause the stock to increase. The short term target price is $2.00/share, and the long term target price is $4.50/share. What is your best course of action?

Do nothing. This is probably a scam. Do not trust the information in this email. Do not believe the advice from the broker.

Now let's assume that the pressure washer cost $400 had to be replaced every 10 years. So your decision is to rent each year at $80, or spend $400 now, which would save you $80 per year for 10 years ($800 gross dollars). Assume the appropriate discount rate (interest rate or i) is 8%. Calculate the PV of the savings (Begin mode) and compare to the cost of buying, The same type of analysis used by corporations to evaluate capital investments would also apply to this buy/rent decision. Be sure you are in the right mode. Calculate the present value of a stream of payments of $80 at the beginning of the year for 10 years at 8% and compare it to the $400 cost. (Note you could also do an NPV analysis, but be sure you net the initial cash flows for time period 0 i.e. $400 minus $80 = $320 and then use 9 Ns for the 80 payment) Your analysis shows:

It is better to buy now, with a net savings of $179.75 Beg mode p/yr = 1 pmt = -80 I = 8% N = 10 PV = 579.751 579.51 - 400 = $179.75

You are considering the purchase of a hybrid Honda Civic. Assume that you drive 12,000 per year, and will keep the auto for 10 years, at which time the car will have zero trade-in value. Assume the cost of gas is $2.49/gallon. The "normal" model gets 34 miles per gallon, while the "hybrid" model gets 50 miles per gallon. The hybrid model cost $21,850 while the normal model costs $18,260. All other operating costs are the same. You can invest your money at a 6% interest rate (i.e. use a 6% discount rate). Given these assumptions, is it a good economic decision to purchase the hybrid? Hint: Calculate the annual gas cost for each car then take the difference (or savings) per year. Next calculate the PV of the annual savings (END MODE) and compare the gas cost savings in today's dollars to the cost difference for the two vehicles. You could also do a NPV analysis, with the car cost difference being used for cash out time period 0, and the savings entered in the CFj key for ten years.

No, don't buy the hybrid. The PV of the savings is $2,070 which is less than the cost difference.You need a greater savings to economically justify the purchase of this hybrid (i.e. the NPV is negative). 1. Calculate gas for each car hybrid = 12000/50 = 240(2.49) = $597.6 normal = 12000/34 = 352.94(2.49) = $878.82 2. Calculate PV for both pmts Hybrid- end mode, p/yr = 1 I = 6 N = 10 Pmt = $597.60 PV = ? PV = -4398.39 Normal - end mode, p/yr = 1 I = 6 N = 10 Pmt = $878.82 PV = ? PV = -6468.19 Take the difference. $6468.19 - $4398.39 = $2070 Cost difference = $21,850 - $18,260 = $3590 You would save $2070 in gas if you bought the hybrid, but you would save $3950 in cost if you bought the normal car. So buy the normal car, you save more.

A taxpayer has $10,000 in charitable contributions and will be using Schedule A with no limitations. The taxpayer is in the 35% marginal tax bracket. The charitable contribution reduced taxable income and his/her taxes by:

Taxable income is $10,000 lower; taxes reduced by $3,500. Taxable income is $10000 lower because of the charitable contribution of $10000 with no limitations. Since they are in the 35% tax bracket, 0.35*10000, there taxes are reduced by $3500

Your bank has two checking account options, one pays tax-free interest at a rate of 3% per annum and the other pays taxable interest at a rate of 4.5% per annum. You are currently in a 24% marginal tax bracket. If you converted the tax-free interest rate to the comparable taxable interest rate you would find that:

The comparable taxable rate is 3.95%, thus you should select the taxable account. Tax-Equivalent Yield = tax rate / (1-tax bracket) Tax-Equivalent Yield = 0.03 / (1-0.24) Tax-Equivalent Yield = 3.95%

Note: If you print Form 1040 & Schedule A from the IRS site (see the Web Work) it will help with this question. A SINGLE person is qualified to take a $12,200 standard deduction in 2019. The medical limitation is 10% in 2019. He/she has adjusted gross income of $100,000 and the following items: Qualifying medical expenses = $11,000 Home mortgage interest = $10,000 (the mortgage is less than $750,000) Property taxes = $2,000 Gifts to charity = $1,000 With respect to their deductions on Schedule A:

Their itemized deductions are $14,000, thus they should use Schedule A.. 0.10 * 100,000 = 10,000 11,000-10000=1000 Itemized deductions = Qualifying medical expenses + property tax + gifts to charity + home mortgage interest = $10000 + $2000 + $1000 + $1000 = $14000

What do you call a check that a bank writes on its own account made payable to a third party on your behalf?

a cashier's check

Which of the following would NOT be excluded from taxable income? a) life insurance proceeds b) scholarships c) employer paid premiums for health insurance d) a company car allowance

a company car allowance

A common advantage associated with home ownership is a. Appreciation of the house's value over long periods of time b. ease of mobility c. limited financial risk d. low initial costs

a. Appreciation of the house's value over long periods of time

Refer to the College of Business "Cash Course" discussed in the web work. With respect to the 6 Surprising Credit Myths, which of the following statements is TRUE? a) The only credit score used for consumers is FICO. b) Potential employers can pull applicants' credit report if they have written permission from the applicant. c) Multiple inquiries into your credit performance will always weaken your credit score. d) You do not need to check your credit report if you pay your bills on time each month and don't have much debt. e) Checking your own credit score is a bad idea.

b) Potential employers can pull applicants' credit report if they have written permission from the applicant.

Refer to the web work article on buying a car from a private individual. Which of the following statements is FALSE? a. You should know if your car is covered by some type of warranty. b. You should solicit the help of a reliable and qualified mechanic to inspect the car after the purchase. c. In most cases, you would not buy a Certified Pre-owned car from an individual d. Start by making a low offer, most times the seller will counteroffer with a higher price e. All of the above answers are true.

b. You should solicit the help of a reliable and qualified mechanic to inspect the car after the purchase.

Which of the following statements is FALSE? a. Mortgage interest on a primary residence is fully deductible for new mortgages up to $750,000 b. Points paid on a new mortgage are fully deductible in the year incurred c. Points paid on a refinancing are fully deductible in the year incurred d. In most cases, interest on home equity loan is fully deductible in the year incurred

c. Points paid on a refinancing are fully deductible in the year incurred

Refer to the FAQs reviewed during the web work. Which of the following would NOT typically be associated with a high risk driver? a. A young driver with no record. b. A 35 year old pizza delivery man. c. The driver of a Honda Civic d. Someone with a bad credit score

c. the driver of a honda civic

An example of tax-exempt income is

dividends from a mutual fund representing interest on municipal bonds

An example of open end credit is

home equity line of credit

If the economy begins to grow at a much faster rate with an increase in inflation, and unemployment falls to lower levels, the Federal Reserve has indicated that it will likely:

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