Personal Finance Exam 1

A UCF graduate writes 22 checks per month and pays $0.04 per check. 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)?

$ 4.56 net cost

Assume the following: Item Value 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

Refer to the Personal Financial Statement excel file under Modules Chapter 3. What is total cash used for financing activities (paying down debt)?

$1,500

A student's bank statement reflects $1,600 at month end. The student's checkbook, before reconciling, reflects $1,500. The student has $5 of interest on the bank statement which has not been posted to his/her checkbook, deposits in transit of $100, and outstanding checks of $195. What is the reconciled bank balance?

$1,505

Assume the following for a 401-K plan. Annual salary = $72,000 Monthly salary = $6,000 Pay date = End of each month Amount you save in 401-K = 5% of salary Amount of employer match = 4% of salary How much will you have in the 401-K plan after 40 years assuming a 8% investment return? (Round to the nearest dollar)

$1,885,144

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?

$109,600

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 The cash advance fee is 2% of the amount withdrawn.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

Please refer to the Personal Financial Statement excel file under Modules Chapter 3. Print out this file, and insert the numbers at the bottom of the page into each applicable financial statement (use the copy command, not the cut and paste command). Each number goes in only one spot, and be sure your balance sheet balances! After you complete the exercise, answer the following questions: What are the total assets?

$203,000

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

$250,000

What is the AFTER TAX value of a $5,000 company car, assuming a 39.6% 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).

$3,020.00

Using the same information as question 4, what is the cost of financing with Store B in the month of June?

$3.00

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 A for the month of June?

$3.75

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%

Note: If you print a Schedule A from the IRS site (see the Web Work) it will help with this question. A UCF graduate has $110,000 of adjusted gross income and $12,500 of qualifying medical expenses. This individual's itemized deductions for medical expenses on Schedule A would be:

$4,250

Using the same information as question 4, what is the cost of financing with Store C in the month of June? (By now you should know which one of these methods is best, and which two to avoid!)

$4.50

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 90% of the value of the house. What is the maximum amount the homeowner could borrow on a home equity loan?

$40,000

A UCF graduate is offered a salary of $36,000 in the year 2018 and expects to receive 3% raises each year. What would be his/her salary in 2022? (Round to the nearest dollar, this is a future value of a single sum TVM problem)

$40,518

Note: If you print a Form 1040 from the IRS site (see the Web Work) it will help with this question. 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

$42,000

Using the web site discussed in the Chapter 3 web work, input the data. How much money is available for additional savings?

$45, and with the 401-K savings this would total $445/month.

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

Please refer to the Personal Financial Statement excel file in Module Chapter 3. See the income statement. How much of Total Income is non-cash?

$5,000

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?

$51,920

Using the salary search tool on PayScale, what is the MEDIAN salary for a financial analyst in Orlando Florida? Select the closest answer, the website MEDIANS seem to change slightly every month so the answer below may not tie exactly to the website. PS: You may also want to check out what your anticipated job will pay while you are visiting this site.

$52,000.

Please refer to the Personal Financial Statement excel file under Modules Chapter 3. What is the net worth at year end?

$58,000

Note: I highly recommend your review the homework illustration excel file in this module before attempting these problems. 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

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?) Instructor's note: You will never get ahead financially in life by carrying high cost credit card balances each month. The ideal solution is to get a card with no fee and pay it off monthly. Notwithstanding my advice, I recognize that some of you will indulge anyway, so you might as well know how to get the best deal!

$714.29

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.

Assume the following exchange rates are "market" rates today: 1 Euro = 1.50 US dollars OR 1 US dollar = .6667 Euros You are planning to exchange $5,000 US dollars for Euros. Which of the following bank deals will give you the most Euros? Hint: See the excel file in the Modules Chapter 5 for an illustration of how to solve this problem.

1 US dollar = .7142 Euros; Exchange fee = 2%

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%

Using the same data as #7 above, how long would it take to pay off the credit card debt if the payments were increased to $600/month? (Note: If the website does not work, you can solve this on your HP. Use 12 payments per year)

20 months

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 $ 340 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?

23.2%

A UCF graduate has $7,000 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%).

29.2%

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%

Using data from the web work, how long will it take to pay off a $10,000 credit card debt at 18% interest per annum with payments of $300/month? (Note: if the website does not work, you can solve this on your HP. Use 12 payments per year)

47 months

Using the Rule of 72, approximately how long does it take for your money to double in value if you earn an 14% annual return?

5.14 years

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%

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

6.875%

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

7

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 is considered a liquid asset?

A long term bond held in a taxable brokerage account

A personal exemption refers to:

A reduction from adjusted gross income for the taxpayer(s) and each dependent listed on the tax return

Under the compare checking accounts page, click the "Common everyday checking account fees" and a PDF file will appear. Using the data in the PDF, which of the following occurring in each statement cycle will result in waiving the normal monthly fee?

A) 10 debit card purchases and/or payments B) $1,500 minimum daily balance C) Any of the above would result in the waiver of the monthly fee. D) Linked to a Wells Fargo campus ATM or campus debit card E) Direct deposits totaling $500 or more Answer: C

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

Open the Excel File in Module Chapter 3 titled Long Range Financial Forecast. Under the "Yearly Budget" Tab, find net income for the current year (cells B 3 and O 59) & record it. Under the "Long Range" Tab, find projected net worth for the last year shown (cell I 62) & record it. Go back to the first worksheet tab. Under the Yearly Budget Tab, find line 27, Clothing. Change the Clothing Budget from $200 to $150 for each month (cells C 27 through N 27). What is the change in net income for the current year and the projected net worth for the last year shown in the Long Range Tab (column I) as a result of this budget savings?

Current year net income goes from $19,240.68 to $19,843.10 The last year's net worth goes from $233,305.57 to $237,258.10

Assume the following: Assets = $110,000 Liabilities = $87,500 Net Worth = $35,000 Monthly credit payments = $1,640 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

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.

A $1,000 tax deduction is more valuable than a $300 tax credit (assuming the taxpayer is in a 25% tax bracket).

False

Note: If you print a Form 1040 from the IRS site (see the Web Work) it will help with this question. An example of an adjustment that is subtracted from gross income to compute "adjusted gross income" or "AGI" is:

IRA contributions (traditional IRA)

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

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

Using the data from the Chapter 1 Web Work assignment, answer question below using the assumptions shown in the Web Work (see Chapter 1 Modules): When will you have $1 million?

In 2054

Recently, the HIGHEST unemployment rates have been for:

Individuals who did not complete high school

An example of tax-exempt income is

Interest or mutual fund dividends derived from municipal bonds or municipal bond mutual funds.

An individual who has an adjustable rate mortgage (ARM) is primarily concerned about _____ risk.

Interest rate

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

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

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 28% marginal tax bracket? (Round to the nearest dollar)

Job 1: $41,944 Job 2: $42,717

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?

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

An example of open end credit is

Revolving check credit

A taxpayer has $10,000 in charitable contributions and will be using Schedule A with no limitations. The taxpayer is in the 28% marginal tax bracket. The charitable contribution reduced taxable income and his/her taxes by:

Taxable income is $10,000 lower; taxes reduced by $2,800.

Refer the Bankrate web site discussed in the web work. Find the savings rate and mortgage rate boxes (NATIONAL AVERAGES). Which of the following is a TRUE statement?

The 5 year CD savings rate is higher than the 1 year CD rate.

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 25% 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 4.0%, thus you would select the taxable account

Note: If you print Form 1040 & Schedule A from the IRS site (see the Web Work) it will help with this question. A couple is qualified to take a $12,700 standard deduction. They have adjusted gross income of $50,000 and the following items: Qualifying medical expenses = $5,500 Home mortgage interest = $10,000 Property taxes = $2,000 Gifts to charity = $1,000 With respect to their deductions on Form 1040 page 2:

Their itemized deductions are $14,750, thus they should use Schedule A.

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

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

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

Refer to the Web Work regarding free credit reports. Which of the following is NOT required to obtain your free credit report?

Your credit card number

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. Answer: E

Note: If you print a 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.

a) Mortgage interest on a primary residence

A formalized report that summarizes your current financial situation, analyzes your financial needs, and recommends a direction for your financial activities is a(n):

financial plan.