Final Calculations

If you pay off a 5 year loan in 3 months, what % of the interest will you pay (Rule of 78)?

9.67% Math: N((n + 1) / 2) = 60 ((60+1)/2) = 1830 177 / 1830 = 0.09672 = 9.67%

If your total take home pay is $30,000, and your total expenditures are $28,000, then your APC (avg. propensity to consume) is...?

93.3% Math: 28,000/30,0000 = 93.3

You deposit $1,000 in an account offering 8% interest, compounded monthly. At the end of 5 years your total balance is (nearest $)?

$1,490 Math: (1 + i/m) ^nm (i / m = 8 / 12 = 0.6667) 5 years * 12 months = 60 months -1000 PV 60 n 0.6667 i/y FV = 1,490

If Marilyn's salary is $5,000 per month, her assets total $178,000, and her liabilities are $50,000, her net worth is...?

$128,000 Math: A - L = NW 178,000 - 50,000 = 128,000

Your take home pay is $3,000 per month. Assuming a 5% mortgage rate and 30 year loan, what is the maximum PITI loan you could afford? Assume the insurance is $100 per month and the taxes are $200 per month (nearest $1).

$130,397 Math: (1/3) * 3,000 = 1,000 - 300 = 700 30 years * 12 months = 360 months -700 PMT 360 n 5 i/y PV = 130,397

If you invest $10,000 at 6% compound interest for 10 years, what is the future value?

$17,908 Math: - 10,000 PV 10 n 6 i/y FV = 17,908

What would you pay for a common stock that just paid a $1 dividend, has a growth rate of 8%, and a required rate of 14%?

$18 Math: STEP 1: Solve for D1 D1 = Do (1 + g) = 1 (1.08) D1 = 1.08 STEP 2: Solve for Price of stock Ps = (D1 / (Ks - g)) = 1.08 / (0.14 - 0.08) = 1.08 / .06 Ps = $18

Interest on a six year installment loan is to be calculated using the add-on method. If the purchased to be financed is $10,000 and the add-on rate is 7%, then your monthly payment is?

$197.22 Math: Total pmt = loan * (1 + (rate * yrs)) =10,000 * (1+(0.07 * 6)) =10,000 * 1.42 =4,2004,200 + 10,000 principle = 14,200 =14,200 / 72 months =197.22

What is the future value of $2,000 invested per year for 30 years at a 9% annual rate?

$272,615 Math: 2000 PMT 9 i/y 30 n FV = 272,615

If you wish to make monthly contributions to your retirement, assuming the same information as the previous question, what is the monthly amount?

$286 Math: (change calculator to 12 function pmt) - 3,000,000 PV 540 n 10 i/y PMT = 286

Your annual mortgage payments are $20,000 of which $8,000 represents interest payments and $5,000 represents taxes, your marginal tax rate is 25%, and you have already itemize deductions. Home ownership will reduce your tax payments by how much each year?

$3,250 Math: Reduction = (interest + taxes) * tax rate = (8,000 + 5,000) * .25 = 13,000 * .25 = 3,250

You take out a simple interest installment loan for $25,000 at a 5.5% rate for 7 years. What is your monthly payment (nearest $1)?

$359 Math: (Set to 12 pmts/yr) 7 years * 12 months = 84 months 25,000 PV 84 n 5.5 i/y PMT = 359.25

You wish to retire in 45 years with $3,000,000. If you expect to earn 10% per year, what amount do you invest each year?

$4,173 Math: 3,000,000 FV 45 n 10 i/y PMT = 4,173

Zero, Inc. has an EPS of $5, a dividend of $2, and a P/E ratio of 10. This means the current market price of a share of Zero stock is?

$50.00 Math: EPS * PE 5 * 10 = 50

John Biner's roof was totally ruined by a fire. The insurance company estimates that the cost of building a new roof is $20,000. It also estimates that roofs like this are expected to last 20 years. The existing roof has been in place for 15 years. Given this information, the actual cash value of the damage is?

$5000 Math: 15 / 20 = .75 100% - 75% = 25% 20,000 * .25 = 5,000

You borrow $100,000 to buy a home. The contract calls for you to pay for 4.5% interest. What is your monthly payment on a 25 year loan without taxes or insurance (nearest $1)?

$556 - 100,000 PV 300 n 4.5 i/y PMT = 555.83

A 30 year bond with a $1,000 face value and a 6% coupon rate is currently selling in the bond market for $700. Its yield to maturity is?

8.89% Math: 700 PV 30 n 1000 FV 60 PMT i/y = 8.8922%

You just bought a home for $165,000, ($25,000 is the value of the lot and foundation). If you insure with a standard homeowners policy for $98,000 how much would you collect on a $10,000 loss (assume a standard 1% standard deductible)?

$7,770 Math: 165,000 - 25,000 = 140,000 140,000 * .8 = 112,000 (total replacement cost) deductible = .01 * 98,000 = 980 (current ins. / total rep. cost) = 98,000 / 112,000 = .875 .875 * 10,000 = 8,750 8,750 - 980 = 7,770

Suppose you have a marginal tax rate of 20%, and your employer is providing tax-free medical insurance with a market price of $600 per month. The additional monthly income you would need to purchase this same insurance would be:

$750 Math: 600 / (1 - .20) 600 / .8 = 750

If a married couple has a gross income fo $80,950, the standard deduction is $24,000, and they have one child, what is his tax liability using the tax table below? (tax table not shown in this quizlet)

$8,975 Math: (80,950 - 24,000 = 56,950) 56,950 - 29,050 = 27,900 (27,900 * .25 = 6,975) 6,975 + 4,000 = 10,975 (10,975 - 2,000 = 8,972) then round up for 8,975

You buy a $28,000 car and must choose between a 0.9% APR for 6 years or $4,000 rebate. You are making a $3,000 down payment, and could get a new car loan at your credit union at 5% for 6 years.

*$4,000 rebate* Math: (0.9% APR and $3,000 DP) $28,000 - $3,000 = $25,000 25,000 PV 72 n (12mos*6yrs) 0.9 i/y PMT = 356.81 ($4,000 rebate and $3,000 DP) $25,000 - $4,000 = $21,000 21,000 PV 72 n 5 i/y PMT = 338.20 *Rebate is cheaper*

ABC stock is expected to earn $3.00 a share next year and pay a cash dividend of $2.00 of a share. If the stock is selling for $20.00 a share, its dividend yield is?

10% Math: CY = D / P = 2 / 20 = .10 CY = 10%

What is the APR (annual % rate) for 10% compounded quarterly?

10.38% Math: (1 + i/m)^nm 10 / 4 = 2.5 1 PV 4 n 2.5 i/y FV = 1.1038 1.1038 - 1 = .1038 .1038 = 10.38%

What is the effective rate for 10% compounded daily?

10.52% Math: (1 + i/m)^nm (i / m = 10 / 365 = 0.02740) 1 year * 365 days = 365 days -1 PV 365 n 0.02740 i/y FV = 1.10521.1052 - 1 = 0.1052 = 10.52%

A common stock is expected to pay a $1.80 dividend and is currently selling for $60 per share. If you want a 15% return on this stock, how much annual growth is needed?

12% Math: Ks = (D1 / Ps) + g 15% = (1.80 / 60) + g 0.15 = 0.03 + g g = 0.12 or 12%

Assume that you are considering investing in Xerox common stock. You have found that its beta is 1.2 and you think the market risk premium should be 8%. If you could earn 12% in the stock market, you should expect a return on Xerox of what percentage?

13.6% Math: 1.2 * 8 = stock risk premium = 9.6% 9.6% + 4% risk free = 13.6%

You purchased an investment for $1,000 on which you earned $120 last year. The inflation rate during that time wad 2.4% and your marginal tax rate is 30%. What was your real after tax rate of return?

6% Math: 12 * .7 (1 - Tx) = 8.4 (after tax) - 2.4 = 6.0 (real after tax)

A municipal bond has a quoted yield of 5%. If an investor has a 20% marginal tax rate, the bond's taxable equivalent yield is?

6.25% Math: Tx = (TF / (1 - Tx)) 5 / .8 = 6.25%

If you buy a $20,000 car and pay $2,000 down with monthly payment of $317.80 a month for 6 years, what is your APR (nearest 1/10%)?

8.25% Math: (change calc to 12 pmts/yr -- because paying monthly) -18,000 PV 72 n 317.80 PMT i/y = 0.0825 = 8.25%

A 10 year bond with a $1,000 face value and a 6% coupon rate is currently selling in the bond market for $700. Its current yield is?

8.57% Math: CY = I / P = 60 / 700 = 8.571%

You take out $10,000 one year loan at 8% discount interest. What is APR rate on this loan?

8.696% Math: APR = I / (P - I) 800 / (10,000 - 800) 800 / (9,200) = 8.696%

A preferred stock has a $100 par and a $7 dividend the current market price is $82. Would you buy this stock if your required rate is 9%?

No, the stock is overvalued by $4.22 Math: Pp = Dp / Kp = 7 / .09 = 77.78 (overvalued by $4.22)

You have a major medical policy with a $500 deductible and a 70-30 co-insurance feature. The cap on the co-insurance is $10,000. If you have a $50,000 medical bill how much will you pay, and how much will your insurance pay?

You pay $3,500 and the insurance pays $46,500 Math: 10,000 * .3 = 3,000 3,000 + 500 = 3,500 50,000 - 3,500 = 46,500

What is the present value of $10,000 per year for 20 years? The required rate is 10%.

answer: E. none of the above A. $200,000 B. $170,000 C. $100,000 D. $90,000 E. none of the above Math: - 10,000 PMT 10 i/y 20 n PV = 85, 136 (correct answer)

Assume that GM common stock has a beta of 1.5. If you expect the market to go up 20% next year, you should also expect GM's price to go up how much?

answer: E. none of the above A. 16.0% B. 18% C. 20% D. 24% E. none of the above Math: 1.5 (0.20) = 0.30 = 30% 30% = stock risk premium

With a 10% discount rate, the PV of a $1,000 (par), 20 year corporate bond with a 12% coupon rate is?

answer: none of the above are within $10 A. $1,413 B. $1,386 C. $1,256 D. $1,123 E. none of the above are within $10 Math: 1000 FV 120 PMT 20 n 10 i/y PV = 1,170.2713 = $1,170 (correct answer)

You have an auto liability policy with limits of 20/40/15. You are involved in an accident where you are at fault. The driver and one passenger both sustain injuries that require $25,000 each for medical bills. Also, both cars are declared totaled. You car is worth $10,000 and the other car is worth $25,000. How much will your insurance pay, and what is your total loss from this accident?

insurance pays 40 + 15 = $55,000 AND your loss is $30,000 Math: STEP ONE: (calculate your total cost prior to insurance coverage)people = 50,000 car = 35,000 = 85,000 total damage STEP TWO: (calculate total insurance coverage) people = 40,000 cars = 15,000 = 55,000 total ins. coverage LAST STEP: (calculate your loss) 85,000 - 55,000 = 30,000