FI 360 Study Guide

Your home insurance provides for replacement value for personal property losses. A microwave is stolen. It cost $288 two years ago and has an expected life of six years. A comparable microwave costs $390 today. What amount will the insurance company pay?

$390

Using the "nonworking" spouse method, what should be the life insurance need for a family whose youngest child is 6 years old?

(18 − 6) × $10,000 = $120,000

Assume that at the beginning of the year, you purchase an investment for $7,300 that pays $96 annual income. Also assume the investment's value has increased to $8,000 by the end of the year. (a) What is the rate of return for this investment? (Input the amount as a positive value. Enter your answer as a percent rounded to 2 decimal places.) (b) Is the rate of return a positive or negative number?

(a) Rate of return = (Increase or decrease in value + Annual income) / Original investment This formula can also be expressed as: Rate of return=(Ending value - Beginning value + Annual income) / Beginning value =($8,000 - 7,300 + 96) / $7,300 =0.1090, or 10.90% (b) Positive The rate of return is a positive number. If an investment decreases in value, the steps used to calculate the rate of return are the same, but the answer is a negative number.

The full Social Security benefit for a spouse is what percent of the retired worker's full benefit?

50

What would be the average tax rate for a person who paid taxes of $4,584 on a taxable income of $41,670? (Enter your answer as a percent rounded to 1 decimal place.)

Average tax rate=Total tax / Taxable income =$4,584 / $41,670 =0.11, or 11%

Which employer retirement plan specifies the benefits promised to the employee at the normal retirement age?

Defined-benefit plan

A financial plan is another name for a budget.

F

Dave borrowed $500 on January 1, 2019. The bank charged him a $5 service charge and interest was $50. If Dave paid the $500 in 12 equal monthly payments, what was the APR? (Enter your answer as a percent rounded to 1 decimal place.)

Finance charge =Interest + Other costs =$50 + 5 =$55 APR=(2 × n × I) / [P × (N + 1)] =(2 × 12 × $55) / [$500 × (12 + 1)] =$1,320 / $6,500 =0.203, or 20.3%

Which one of the following would reduce gross income to obtain adjusted gross income?

IRA contributions

Level Four Investments include all of the following, except:

Level Four Investments include speculative stocks, options, commodities, and other high-risk investments.Low-Risk Investments

Hal Thomas wants to establish a savings fund from which a community organization could draw $1,480 a year for 25 years. If the account earns 3 percent, what amount would he have to deposit now to achieve this goal? Use Exhibit 1-D. (Round time value factor to 3 decimal places and final answer to 2 decimal places.)

PV=PMT × PV annuity table factor =$1,480 × 17.413 =$25,771.24

Which one of the following is the most widely used source of retirement income?

Social Security

A "no-fee" checking account that requires a non-interest-earning minimum balance of $500 has an opportunity cost of lost interest earnings.

T

A SEP-IRA plan is simply an individual retirement account funded by the employer.

T

A person's filing status is affected by marital status and dependents.

T

Al Barkley is single and earns $54,000 in taxable income. He uses the following tax rate schedule to calculate the taxes he owes. Up to $9.525 10% $9,525 − $38,700 12% $38,700 − $82,500 22% $82,500 − $157,500 24% What is Al's average tax rate?

[$9,525 × 0.10] + [($38,700 - $9,525) × 0.12] + [($54,000 - $38,700) × 0.22] = $7,819.50; $7,819.50/$54,000 = 0.1448 = 14.48%.

Bobby is trying to decide between two credit cards. One has no annual fee and an interest rate of 18 percent, and the other has an annual fee of $40 and an interest rate of 8.9 percent. (a) If Bobby pays his credit card balance in full each month, which card should he choose? (b) If Bobby just pays the minimum payment and carries a balance from one month to the next, which card should he choose?

a)Since Bobby will not incur any interest charges, he should select the card without the annual fee.He should select the card without the annual fee. b)Since Bobby will incur interest charges, he should most likely select the card with the lower interest rate.He should most likely select the card with the lower interest rate

Earnest money is used:

as evidence of good faith by a homebuyer.

A personal check with guaranteed payment is called a:

certified check.

The Federal Deposit Insurance Corporation insures savings plans at:

commercial banks and savings and loan associations.

Some savings and investment choices have the potential for higher earnings. However, these may also be difficult to convert to cash when you need the funds. This problem refers to:

liquidity risk

Automatically buying a new CD upon maturity of the current CD is commonly referred to as:

rolling over.

The method of determining life insurance requirements that considers factors such as Social Security and your liquid assets is called the:

"family need" method.

Term insurance is protection for a specified period of time, usually 1, 5, 10, or 20 years.

T

The "family need" method of determining life insurance needs provides a thorough estimation of your life insurance needs.

T

The DINK method of determining life insurance needs assumes that your spouse will continue to work after your death.

T

The amount of your whole life insurance premium for each $1,000 of coverage depends primarily on the age at which you purchase the insurance.

T

The most frequent users of payday loans are workers who have become trapped by debts or poor financial decisions.

T

The potential return on any investment should be directly related to the risk that the investor assumes.

T

The time to begin saving is when you are young.

T

Annuity payouts may either be a fixed or a variable amount

T

Which type of insurance is sometimes called temporary life insurance?

Term insurance

Mary Watson bought 20 shares of stock two years ago. She recently sold her stock making a profit of $1,400. Long-term capital gain rates are 15% for her income level. She is in the 22% tax bracket. Her tax on this investment is:

$1,400 × 0.15 = $210

Wind damage occurs to your car costing $1,500 to repair. If you have a $270 deductible for collision and full coverage for comprehensive, what portion of the claim will the insurance company pay?

$1,500

A tax credit of $130 for a person in a 10 percent tax bracket would reduce a person's taxes owed by: (Round your answer to the nearest whole number.)

$130.

Forty years ago, you began investing $2,000 a year. Because your investments earned an average of 2 percent a year, your investment portfolio has a current dollar value of $120,804. How much did you earn on your investments over the 40-year period of time?

$2,000 × 40 years = $80,000; $120,804 − $80,000 =$40,804

A taxable investment produced interest earnings of $2,100. A person in a 33 percent tax bracket would have after-tax earnings of: (Round your answer to the nearest whole number.)

$2,100 × 0.33 = $693 tax owed; (taxable gross earnings -tax owed ) = $2,100-$693 = $1,407 after-tax earnings.

Which statement is correct regarding mutual life insurance companies?

A mutual company refunds part of the premium to its policyholders.

Beth and Bob Martin have total take-home pay of $4,600 a month. Their monthly expenses total $3,800. Calculate the minimum amount this couple needs to establish an emergency fund.

Minimum emergency fund =3 × Monthly expenses =3 × $3,800 =$11,400

You have a gross annual income of $52,000. Use the multiple of income method to determine the minimum amount of life insurance you should carry.

Minimum insurance need= $52,000 × 5 =$260,000

Which one of the following savings plans is not covered by federal deposit insurance?

Money market fund with an investment company

Ben and Carla Manchester plan to buy a condominium. They will obtain a $150,000, 30-year mortgage at 6 percent. Their annual property taxes are expected to be $1,800. Property insurance is $480 a year, and the condo association fee is $220 a month. Based on these items, determine the total monthly housing payment for the Manchesters. Use Exhibit 9-9. (Round time value factor to 2 decimal places and final answer to the nearest whole number.)

Monthly Housing Payment Mortgage factor × Mortgage amount in thousands =$6.00 × 150 =$900 Monthly property taxes=Annual taxes / 12 =$1,800 / 12 =$150 Monthly property insurance=Annual property insurance / 12 =$480 / 12 =$40 Monthly association fee 220 (900+150+40+220=) Total monthly housing payment$1,310

Alice Cooper contributes six percent of her monthly earnings to her 401k plan at work. The plan allows her to invest in several different types of mutual funds and her employer matches up to 3% of her salary. Which suggestion for obtaining the money she needs for investing is she following?

Taking advantage of employer-sponsored retirement programs

If $4,420 was withheld during the year and taxes owed were $3,370, would the person owe an additional amount or receive a refund? What is the amount? (Input the amount as a positive value.)

Tax due(refund)=Tax liability - Taxes paid =$3,370 − $4,420 =-$1,050

The Kelleher family has health insurance coverage that pays 80 percent of out-of-hospital expenses after a $500 deductible per person. If one family member has doctor and prescription medication expenses of $1,100, what amount would the insurance company pay? (Do not round intermediate calculations.)

Total expenses − Deductible=Coinsurance expenses =$1,100 − 500 =$600 Coinsurance percent × Coinsurance expenses= Insurance payment =0.80 × $600 =$480

George Washburn had earnings from his salary of $35,000, interest on savings of $1,450, a contribution to a traditional individual retirement account of $1,080, and dividends from mutual funds of $280. George's adjusted gross income would be:

$35,000 + $1,450 + $280 - $1,080 = $35,650.

Michele Walsh is considering an additional charitable contribution of $4,200 to a tax-deductible charity, bringing her total itemized deductions to $13,250. If Michele is single, is in a 28 percent tax bracket, and is not subject to a phase out of deductions, how much will this $4,200 contribution reduce her taxes? (Round your answer to the nearest whole number.)

$4,200 × 0.28 = $1,176

A taxpayer with a taxable income of $51,856 and a total tax bill of $5,963 would have an average tax rate of ____ percent. (Round your answer to 2 decimal places.)

$5,963 / $51,856 = 0.1150 or 11.50%.

The Federal Deposit Insurance Corporation insures deposits up to $250,000 per person per financial institution. Suzanne has $520,000 in a joint account with her husband, Ted. How much is not covered by FDIC insurance?

$520,000 / 2 = $260,000 − $250,000 (coverage) = $10,000 uncovered for each person. $20,000

The total debts of you and your spouse include the following: mortgage, $200,000; auto loan, $16,000; credit card balance, $2,000; and personal debts of $4,000. Further, you estimate that your funeral will cost $6,000. Your spouse expects to continue to work after your death. What is your life insurance need using the DINK method?

$6,000 + ½ ($200,000 + $16,000 + $2,000 + $4,000) = $117,000

Sidney took a $200 cash advance by using checks linked to her credit card account. The bank charges a 2 percent cash advance fee on the amount borrowed and offers no grace period on cash advances. Sidney paid the balance in full when the bill arrived. (a) What was the cash advance fee? (b) What was the interest for one month at an APR of 18 percent? (c) What was the total amount Sidney paid?

(a) Cash advance fee=Rate × Principal borrowed =0.02 × $200 =$4 (b) Interest=P × r × T =$200 × 0.18 × (1 / 12) =$3 (c) Total repayment=Principal borrowed + Cash advance fee + Interest =$200 + 4 + 3 =$207

Carl Lester has liquid assets of $3,080 and current liabilities of $3,350. (a) What is his current ratio? (Round your answer to 1 decimal place.) (b) Which comment best describes his financial position?

(a) Current ratio=Liquid assets / Current liabilities =$3,080 / $3,350 =0.9 (b) A current ratio of 0.9 is generally viewed as less than desirable. Lower than the desirable ratio 2.0

After visiting several automobile dealerships, Richard selects the used car he wants. He likes its $10,000 price, but financing through the dealer is no bargain. He has $2,000 cash for a down payment, so he needs an $8,000 loan. In shopping at several banks for an installment loan, he learns that interest on most automobile loans is quoted at add-on rates. That is, during the life of the loan, interest is paid on the full amount borrowed even though a portion of the principal has been paid back. Richard borrows $8,000 for a period of four years at an add-on interest rate of 11 percent. (a) What is the total interest on Richard's loan? (Do not round intermediate calculations. Round your answer to the nearest whole number.) (b) What is the total cost of the car? (Do not round intermediate calculations. Round your answer to the nearest whole number.) (c) What is the monthly payment? (Do not round intermediate calculations. Round your answer to the nearest whole number.) (d) What is the annual percentage rate (APR)? (Do not round your intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

(a) Interest=P × r × T = $8,000 × 0.11 × 4 =$3,520 (b) Total cost=Down payment + Total interest + Principal =$2,000 + 3,520 + 8,000 =$13,520 (c) Monthly payment=(Principal borrowed + Total interest) / Total number of payments =($8,000 + 3,520) / 48 =$240 (d) APR=(2 × n × I) / [P × (N + 1)] =(2 × 12 × $3,520) / [$8,000 × (48 + 1)] =$84,480 / $392,000 =0.2155, or 21.55%

What would be the net annual cost of the following checking accounts? (a) Monthly fee, $3.75; processing fee, $0.25 per check; checks written, an average of 22 a month. (Do not round intermediate calculations. Input the answer as a positive value.) (b) Interest earnings of 6 percent with a $500 minimum balance; average monthly balance, $600; monthly service charge of $15 for falling below the minimum balance, which occurs three times a year (no interest earned in these months). (Do not round intermediate calculations. Input the answer as a positive value.)

(a) Net annual cost= (Monthly fee × 12) + (Fee per check × Number of checks per month × 12) = ($3.75 × 12) + ($0.25 × 22 × 12) ' = $111 (b) Net annual cost= Service charges − Interest earnings = ($15 × 3) - (0.06 × $600 × 9 / 12) = $18

On December 30, you decide to make a $2,500 charitable donation. (Assume you itemize your deductions.) (a) If you are in the 24 percent tax bracket and you expect to itemize your deductions, how much will you save in taxes for the current year? Tax savings for the current year ____________ (b) If you deposit that tax savings in a savings account for the next five years at 4 percent, what will be the future value of that account? Use Exhibit 1-A. (Round time value factor to 3 decimal places and final answer to 2 decimal places.) Future value of tax savings___________

(a) Tax savings=Tax rate × Tax deduction =0.24 × $2,500 =$600 (b) FV=PV × FV single sum table factor =$600 × 1.217 =$730.20

Robert owns a $140,000 town house and still has an unpaid mortgage of $110,000. In addition to his mortgage, he has the following liabilities: Liabilities Visa$565 MasterCard 480 Discover card 395 Education loan 920 Personal bank loan 800 Auto loan 4,250 Total$7,410 Robert's net worth (not including his home) is about $21,000. This equity is in mutual funds, an automobile, a coin collection, furniture, and other personal property. (a) What is Robert's debt-to-equity ratio? (Round your answer to 2 decimal places.) (b) Has he reached the upper limit of debt obligations?

(a) The debt-to-equity ratio excludes both the value of a home and the mortgage on that home. Thus, these items are omitted from the following calculations. Total debt =$565 + 480 + 395 + 920 + 800 + 4,250 =$7,410 Debt-to-equity ratio =Total debt / Total equity =$7,410 / $21,000 =0.35 (b) No Robert's debt-to-equity ratio is less than the upper limit of debt obligations which is defined as a debt-to-equity ratio of 1.

At a 3 percent rate of inflation, approximately how many years will it take for prices to double?

24 years

Your uncle lends you $2,000 less $100 (interest at 5 percent), and you receive $1,900. Use the APR formula to find the true annual percentage rate. Assume you repay the entire loan in one year. (Enter your answer as a percent rounded to 3 decimal places.)

APR=(2 × n × i) / [P × (N + 1)] =(2 × 1 × $100) / [$1,900 × (1 + 1)] =0.05263, or 5.263%

What would be the annual percentage yield for a savings account that earned $56 in interest on $800 over the past 365 days? (Do not round intermediate calculations. Round your answer to the nearest whole number.)

APY= 100 (Interest / Principal) = 100 ($56 / $800) = 7%

Estimate the affordable monthly mortgage payment, the affordable mortgage amount, and the affordable home purchase price for the following situation. (Refer to Exhibit 9-8 and Exhibit 9-9) (Round time value factor to 2 decimal places, intermediate and final answers to the nearest whole number.) Monthly gross income$2,950 Down payment to be made (percent of purchase price) 15 Percent Other debt (monthly payment)$160 Monthly estimate for property taxes and insurance$210 30-year loan 8 Percent

Affordable Rent & Mortgage Calculations 38% $2,950 ×0.38=$1,121 −160 −210 Affordable monthly mortgage payment =$751 ÷$ 7.34 ×$1,000 Affordable mortgage amount= $102,316 ÷0.85 Affordable home purchase price =$120,372 33% $2,950×0.33=$974 −210 Affordable monthly mortgage payment = $764 ÷$ 7.34 ×$1,000 Affordable mortgage amount= $104,087 ÷0.85 Affordable home purchase price =$122,455

In March, stockholders of Herbalife Nutrition approved a 3-for-2 stock split. After the split, how many shares of Herbalife stock will an investor have if she or he owned 470 shares before the split?

After-split shares=Pre-split shares × Split ratio =470 × (3 / 2) =705

Assume your gross pay per pay period is $2,000 and you are in the 33 percent tax bracket. Calculate your net pay and spendable income if you save $200 per pay period after paying income tax on $2,000. (Do not round intermediate calculations.)

After-tax saving method Gross Pay (Tax)=Net Pay $2,000 $(660)= $1,340 After-Tax Savings Spendable Income $1,340 -$200= $1,140

With a 28 percent marginal tax rate, would a tax-free yield of 7 percent or a taxable yield of 9.5 percent give you a better return on your savings?

After-tax yield = Pretax yield × (1 − Tax rate) = 9.5% × (1 − 0.28) = 6.84% The tax-free investment yields 7 percent which is preferable to the 6.84 percent after-tax yield on the taxable investment. Tax-free yield

Would you prefer a fully taxable investment earning 11.8 percent or a tax-exempt investment earning 7.5 percent? (Assume a 28 percent tax rate.)

After-tax yield=Pretax yield × (1 - Tax rate) =11.8% × (1 - 0.28) =8.50% The tax-exempt investment yields 7.5 percent which is less than the 8.5 percent after-tax yield on the taxable investment. Taxable investment 11.8%

Although Level Two Investments are more speculative than Level One Investments, the primary goal is to choose investments that provide _____________ and ______________.

Although Level Two Investments are more speculative than Level One Investments, the primary goal is to choose investments that provide safety and income. Safety; income

Most home insurance policies cover jewelry for $1,000 and silverware for $2,500 unless items are covered with additional insurance. If $3,800 worth of jewelry and $2,800 worth of silverware were stolen from a family, what amount of the claim would not be covered by insurance?

Amount not covered by insurance=($3,800 − 1,000) + ($2,800 − 2,500) =$3,100

All of the following are true of open-ended funds, except:

An open-end fund is a mutual fund whose shares are issued and redeemed by the investment company at the request of investors. Most open-end funds provide their investors with a wide variety of services. Shares of open-end funds have a variety of costs. The price you pay for a share in an open-end fund is referred to as the net-asset value.The major disadvantage of open-ended funds is the cost of buying and selling shares.

Dave borrowed $500 on January 1, 2019, and paid it all back at once on December 31, 2019. The bank charged him a $5 service charge and interest was $50. What was the APR? (Enter your answer as a percent rounded to the nearest whole number.)

Annual finance charge=Interest + Other costs =$50 + 5 =$55 APR=Annual finance charge / Principal borrowed =$55 / $500 =0.11, or 11%

Assume that you purchased a corporate bond with a face value of $10,000. The interest rate is 8.20 percent. What is the dollar amount of annual interest you will receive each year?

Annual interest=Face value × Interest rate =$10,000 × 0.0820 =$820

Ted Riley owns a vehicle worth $28,000 and a home worth $330,000. He has a checking account balance of $1,000, a savings account balance of $3,000, and a mutual fund worth $81,000. His personal assets are worth $76,000. He still owes $14,000 on his car, $112,000 on his home, and $1,500 on his credit card. What is Ted's net worth?

Assets (28,000 + 330,000 + 1,000 + 3,000 + 81,000 + 76,000) − Liabilities (14,000 + 112,000 + 1,500) = 519,000 − 127,500 = $391,500

Jasmine Smith owns a condo worth $260,000, a car valued at $25,500, and miscellaneous assets worth $14,000. She owes $183,000 on the condo and $11,000 on the car and has no other debts. Her retirement account, in which she is fully vested, contains $42,500 in mutual funds. She was just insured with a $620,000 term life insurance policy. What are her total assets?

Assets = 260,000 + 25,500 + 14,000 + 42,500 = $342,000

You have $50,000 in your retirement fund that is earning 5.5 percent per year, compounded quarterly. How many dollars per month can you withdraw for as long as you live and still leave this nest egg intact? (Use Exhibit 18-16)

At 5.5 percent interest, compounded quarterly, you can withdraw $230 a month indefinitely and still leave the $50,000 nest egg intact.

Tax avoidance refers to the use of illegal actions to reduce one's taxes.

F

The more frequently the compounding occurs, the less a person will earn on a savings account.

F

The rate of return on an investment has no effect on an investment program.

F

You can depend on your employer's health insurance plan and Medicare to pay all your medical expenses when you retire.

F

In an attempt to have funds for a down payment, Jan Carlson plans to save $3,400 a year for the next five years. With an interest rate of 3 percent, what amount will Jan have available for a down payment after the five years? Use Exhibit 1-B. (Round time value factor to 3 decimal places and final answer to 2 decimal places.)

FV=$3,400 × 5.309 =$18,050.60

Mini Case: Retirement Saving A client, James & Ashley, both just having turned 43) have approached you with a specific request. They would like you to calculate how much they need to save annually between now and retirement in order to live comfortably during their retirement based on the following information and estimates: Current annual living expenditure $94,000 Annual living expenditure in retirement 75% of current need Estimated average tax rate in retirement 14% Social Security Income (beginning age 66) (today's $) $35,000 Retirement income from prior pension plan (today's $) $12,000 Additional spending during retirement - medical costs (today's $) $5,000 Planned retirement age 66 (assume this to be 23 years from today) Retirement years 25 Estimated future inflation rate 2.5% Investment return going forward and in retirement 6%

Blackboard, Assignments, (C_Wksheet_Retire Need Funding_Soln_Tmplate James_Ashley)

Lesley purchased 250 mutual fund shares at $18 per share. Lesley decided to sell her shares after the price increased to $29 per share. What is Lesley's capital gain?

Capital Gain = (Selling Price - Purchase Price) x Number of Shares = ($29 - $18) x 250 shares = $2,750

All of the following are true of capital gains distributions, except:

Capital gains distributions are payments made to a fund's shareholders that result from the sale of securities in the fund's portfolio. Capital gains distributions are typically paid once a year. Capital gains distributions are taxed as long-term capital gains regardless of how long you own shares in the fund. The majority of exchange-traded funds don't usually pay end-of-the-year capital gain distributions.Capital gains distributions are commonly paid twice a year.

The Kelleher family has health insurance coverage that pays 75 percent of out-of-hospital expenses after a $500 deductible per person. If one family member has doctor and prescription medication expenses of $1,160, what amount would the insurance company pay? (Do not round intermediate calculations.)

Coinsurance expenses=Total expenses − Deductible =$1,160 - 500 =$660 Insurance payment=Coinsurance percent × Coinsurance expenses =0.75 × $660 =$495

If Carissa has a $130,000 home insured for $100,000, based on the 80 percent coinsurance provision, how much would the insurance company pay on a $5,000 claim? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Coinsurance requirement=0.80 × Value of home =0.80 × $130,000 =$104,000 Amount paid=(Insurance coverage / Coinsurance requirement) × Claim amount =($100,000 / $104,000) × $5,000 =$4,807.69

Which of the following is organized as a corporation and owned by stockholders?

Commercial banks

Using Exhibit 12-2, determine the life expectancy of a 40-year-old male.

Current age + Expected additional years= Life expectancy =40 + 38.8 =78.8 years

Janice Jacobs is planning for her retirement. She knows what assets and liabilities she has now and expects to have in the future. She knows what her spending patterns are likely to be and adjusted them for inflation. She also has identified all of her sources of income after she retires. Now she is sitting down and planning her income and expenses each month. After she has finished this plan, she knows that she has enough income to cover her expected expenses and still have $200 extra each month for emergencies and other unplanned activities. Even with inflation, she thinks she can sustain this plan for approximately 30 years. What step in the retirement planning process is Janice completing?

Determining how long her retirement savings will last.

A regular savings account usually offers a higher rate of return to savers than a certificate of deposit.

F

Inflation increases the purchasing power of your retirement savings.

F

When Jamal graduated from college recently, his parents gave him $1,000 and told him to use it wisely. Jamal decided to use the money to start a retirement account. After doing some research about different options, he put the entire amount into a tax-deferred IRA that pays 11 percent interest, compounded annually. Calculate how much money Jamal will have in his IRA at the end of 10 years, assuming that the interest rate remains the same and that he does not deposit any additional money. Use Exhibit 1-A. (Round time value factor to 3 decimal places and answer to the nearest whole number.)

FV=PV × Future value interest factor 11%, 10 =$1,000 × 2.839 =$2,839

Janine is 47 and has a good job at a biotechnology company. Janine estimates that she will need $955,000 in her total retirement nest egg by the time she is 65 in order to have retirement income of $28,500 a year. (She expects that Social Security will pay her an additional $21,500 a year.) She currently has $6,500 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 8 percent, and she plans to leave it untouched until she retires at age 65. How much money will Janine have to accumulate in her company's 401(k) plan over the next 18 years in order to reach her retirement income goal? Use Exhibit 1-A. (Round time value factor to 3 decimal places. Round intermediate and final answer to 2 decimal places.)

FVIRA=PV × Future value interest factor 8%, 18 =$6,500 × 3.996 =$25,974.00 FV401(k)=Desired retirement funds − FVIRA =$955,000 - 25,974.00 =$929,026.00

Janine is 25 and has a good job at a biotechnology company. Janine estimates that she will need $875,000 in her total retirement nest egg by the time she is 65 in order to have retirement income of $20,000 a year. (She expects that Social Security will pay her an additional $15,000 a year.) She currently has $5,000 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 8 percent, and she plans to leave it untouched until she retires at age 65. How much money will Janine have to accumulate in her company's 401(k) plan over the next 40 years in order to reach her retirement income goal? Use Exhibit 1-A. (Round time value factor to 3 decimal places. Round intermediate and final answer to the nearest whole number.)

FVIRA=PV × Future value interest factor 8%, 40 =$5,000 × 21.725 =$108,625

A few years ago, Michael purchased a home for $200,000. Today, the home is worth $300,000. His remaining mortgage balance is $100,000. Assuming Michael can borrow up to 80 percent of the market value of his home, what is the maximum amount he can borrow?

Maximum loan amount =0.80 × Market value =0.80 × $300,000 =$240,000 Maximum loan available =Maximum loan amount − Current loan balance =$240,000 − 100,000 =$140,000

If market interest rates decrease from 7% to 6%, what happens to the value of a $1,000 bond with a fixed interest rate?

If overall interest rates decrease, a $1,000 bond with a fixed interest rate will increase in value.It will increase.

Calculating the rate of return allows you to determine:

If the investment is earning enough to meet or exceed your investment goals.

All of the following are tabs that you can get more information from at the top of the report, except:

If you are using the Internet to access a Morningstar report, you can get even more information by clicking on the tabs at the top of the report including the fund analysis, performance, ratings and risk, management, stewardship, portfolio, expense, tax, and purchase information, and filing (or financial statement) tabs.Interest Rates

According to the example in the video, what is located at the top of the Morningstar research report for the Vanguard 500 Index Fund?

In the Morningstar research report for the Vanguard 500 Index Fund in the video, information about the name of the fund and the fund symbol, current net asset value, yield, total assets, expenses, fees, turnover, and other statistical information is located at the top of the report.All of the above are located at the top of the example in the video.

All of the following statements are considered to be good advice for a potential investor starting an investment program except:

Increase credit purchases to conserve cash.

What amount would a person with actual cash value (ACV) coverage receive for 2 year old furniture destroyed by a fire? The furniture would cost $1,000 to replace today and had an estimated life of 5 years.

Insurance payment=Replacement cost − Depreciation =$1,000 − [($1,000 / 5) × 2] =$600

All of the following are ways that investors can make money by investing in closed-end funds, exchange-traded funds, or open-end funds, except:

Investors can make money by investing in closed-end funds, exchange-traded funds, or open-end funds through income dividends, capital gains distributions, and capital gains from the sale of securities in their portfolio. Capital Losses

Which of the following determine the prices for shares for closed-end funds?

Like the prices of stocks, the prices for shares for closed-end funds are determined by the factors of supply and demand, the value of stocks and other investments contained in the fund's portfolio, and by investor expectation.Factors of supply and demand, Value of stocks and other investments contained in the fund's portfolio, and Investor expectations

Samuel Jenkins made two investments; the first was 13 months ago and the second was two months ago. He just sold both investments and has a capital gain of $3,000 on each. If Samuel is single and has taxable income of $40,000, what will be the amount of capital gains tax on each investment? See Capital Gains table and Taxable income rate table. Capital Gains Tax Investment 1 (held 13 months) Investment 2 (held 2 months)

Long-term capital gains (investments held more than a year), are taxed at a lower rate. Investment # 1 (held 13 months): Capital gains tax =Long-term capital gains tax rate × Capital gain =0.15 × $3,000 =$450 Investment # 2 (held 2 months): Capital gains tax =Short-term capital gains tax rate × Capital gain =0.22 × $3,000 =$660

Samuel Jenkins made two investments; the first was 14 months ago and the second was two months ago. He just sold both investments and has a capital gain of $6,500 on each. If Samuel is single and has taxable income of $40,000, what will be the amount of capital gains tax on each investment? See Capital Gains table and Taxable income rate table. Capital Gains Tax Investment 1 (held 14 months) Investment 2 (held 2 months)

Long-term capital gains (investments held more than a year), are taxed at a lower rate. Investment # 1 (held 14 months): Capital gains tax=Long-term capital gains tax rate × Capital gain =0.15 × $6,500 =$975 Investment # 2 (held 2 months): Capital gains tax=Short-term capital gains tax rate × Capital gain =0.22 × $6,500 =$1,430

Which types of companies (as discussed in the video) are considered growth investments?

Many technology companies, like Facebook and Google, are considered growth investments because of the potential increase in value over time.Technology Companies

Crystal Ventures Mutual Fund contains stocks and securities valued at $476 million. The fund has liabilities that total to $6.3 million and the fund has issued 31 million shares. What is the Net Asset Value?

Net Asset Value = [(Value of Fund's Portfolio - Liabilities)/# of Shares] = [($476 million - $6.3 million)/31 million] = $15.15

You are given the following information: Boston Equity Mutual Fund Total assets $768 million Total liabilities $6 million Total number of shares $24 million Calculate the net asset value for the Boston Equity mutual fund. (Round your answer to 2 decimal places.)

Net Asset Value=(Value of the fund's portfolio - Liabilities) / Number of shares outstanding =($768 - $6) / 24 =$31.75 per share

Kim is trying to decide whether she can afford a loan she needs in order to go to chiropractic school. Right now Kim is living at home and works in a shoe store, earning a gross income of $820 per month. Her employer deducts $145 for taxes from her monthly pay. Kim also pays $95 on several credit card debts each month. The loan she needs for chiropractic school will cost an additional $120 per month. Help Kim make her decision by calculating her debt payments-to-income ratio with and without the college loan. (Remember the 20 percent rule.)(Enter your answers as a percent rounded to 2 decimal places.)

Net income =Gross income − Taxes =$820 − 145 =$675 Current debt plus college loan: Debt payments-to-income ratio =Debt payments / Net income =($95 + 120) / $675 =0.3185, or 31.85% Current debt without college loan: Debt payments-to-income ratio =Debt payments / Net income =$95 / $675 =0.1407, or 14.07% If Kim adds the college debt to her current credit card debt, her debt payments-to-income ratio will exceed the recommended 20 percent limit. However, if Kim can pay off her credit card debt, then the college loan is affordable as seen here: College loan only: Debt payments-to-income ratio =Debt payments / Net income =$120 / $675 =0.1778, or 17.78%

Louise's monthly gross income is $2,000. Her employer withholds $400 in federal, state, and local income taxes and $160 in Social Security taxes per month. Louise contributes $80 per month for her IRA. Her monthly credit payments for Visa, MasterCard, and Discover cards are $35, $30, and $20, respectively. Her monthly payment on an automobile loan is $285. (a) What is Louise's debt payments-to-income ratio? (Enter your answer as a percent rounded to 1 decimal place.) b) Is Louise living within her means?

Net income =Gross income − Taxes − IRA contribution =$2,000 − 400 − 160 − 80 =$1,360 Debt payments =Credit card payments + Auto loan payment =$35 + 30 + 20 + 285 =$370 Debt payments-to-income ratio =Debt payments / Net income =$370 / $1,360 =0.272, or 27.2% b)no

Jamie McFarland has determined that the value of her liquid assets is $4,600, the value of her real estate is $128,000, the value of her personal possessions is $58,000, and the value of her investment assets is $70,000. She has also determined the value of her current liabilities is $7,600 and the value of her long-term liabilities is $99,000. What is Jamie's net worth?

Net worth equals assets minus liabilities. ($4,600 + $128,000 + $58,000 + $70,000) - ($7,600 + $99,000) = $154,000

During the past month, Jennifer Johnson had income of $6,000. During the month, her net worth declined by $1,200. If no other financial activities occurred, this means Jennifer's payments for the month were:

Net worth will decrease if outflows are greater than inflows. Outflows = $6,000 − (−$1,200) = $7,200

Kelly and Tim Browne plan to refinance their mortgage to obtain a lower interest rate. The Browns will reduce their mortgage payments by $83 a month and incur closing costs of $1,670 as a result of refinancing. How long will it take them to recover the cost of refinancing? (Round your answer to 1 decimal place.)

Refinancing cost / Monthly savings =Recovery time =$1,670 / $83 =20.0 months

Rental Costs Annual rent $7,380 Insurance 145 Security deposit 650 Buying Costs Annual mortgage payments$9,800($9,575 is interest) Property taxes 1,780 Insurance/maintenance 1,050 Down payment/closing costs 4,500 Growth in equity 225 Estimated annual appreciation 1,700 Assume an after-tax savings interest rate of 6 percent and a tax rate of 28 percent. (a) Calculate the total rental cost and total buying cost. (Round your intermediate calculations and final answers to the nearest whole number.) Assume an after-tax savings interest rate of 6 percent and a tax rate of 28 percent. (a) Calculate the total rental cost and total buying cost. (Round your intermediate calculations and final answers to the nearest whole number.)

Rental Costs Annual rent $7,380 Insurance 145 Security deposit 650 Total Rental Cost= 7564 Mortgage payments$9,800 Taxes, insurance, maintenance 2,830 Interest lost on down payment, closing costs 270 Growth in equity -225 Annual appreciation =1,700 Tax savings for mortgage interest 2,681 Tax savings for property taxes -498 Total buying costs=$7,796

Jeremiah Brown has been making contributions into an individual retirement account for his retirement. His contributions are not tax deductible but his earnings accumulate tax free. What type of individual retirement account does he have?

Roth IRA

Tammy Jackson purchased 141 shares of All-American Manufacturing Company stock at $40.50 a share. One year later, she sold the stock for $44 a share. She paid her broker a $36 commission when she purchased the stock and a $42 commission when she sold it. During the 12 months she owned the stock, she received $167 in dividends. Calculate Tammy's total return on this investment. (Round all intermediate calculations and final answer to the nearest whole number.)

Sale proceeds=(Number of shares × Sales price) − Sales commission =(141 × $44) − $42 =$6,162 Purchase cost=(Number of shares × Purchase price) + Purchase commission =(141 × $40.50) + $36 =$5,746 Total return=Total dividends + Total capital gains =Total dividends + (Sale proceeds − Purchase cost) =$167 + ($6,162 − $5,746) =$582

Taliyah invested $21,000 in the American Funds Euro-Pacific Growth fund. This fund charges a sales charge of 4.35%. What is the net amount available for investment?

Sales Charge (in $) = $21,000 x 0.0435 = $913.50Amount Available for Investment = Original Inv. - Sales Charge Amount = $21,000 - $913.50 = $20,086.50

David invested $18,000 in the American Funds Euro-Pacific Growth fund. This fund charges a sales charge of 6.22%. What is the dollar amount of the sales charge to purchase shares?

Sales Charge (in $) = Original Investment x Sales Load Percentage = $18,000 x 0.0622 = $1,119.60

A drawback of Flexible Spending Accounts is that any account funds must be used to pay for expenses incurred before year's end or the money is lost.

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A restrictive endorsement on a check to be deposited consists of the words "for deposit only."

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A rider is any document attached to the policy that modifies its coverage by adding or excluding specified conditions or altering its benefits.

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An asset management account provides a complete financial services program for a single fee.

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Before you buy life insurance, you should determine whether you really need life insurance.

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Capital gains refer to profits from the sale of stocks, bonds, or real estate.

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In a reverse annuity mortgage, a lender uses your house as collateral to buy an annuity for you from a life insurance company.

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It is vital to engage in basic retirement planning activities throughout your working years.

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Most people buy life insurance to protect someone who depends on them from financial losses caused by their death.

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Single persons living alone usually have little or no need for life insurance.

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Universal life is a whole life policy that combines term insurance with an investment option.

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You can put your IRA funds in many kinds of investments, including stocks, bonds, mutual funds, real estate, and U.S.-minted gold and silver coins.

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Assume your gross pay per pay period is $2,000 and you are in the 33 percent tax bracket. Calculate your net pay and spendable income if you save $200 per pay period in a tax-sheltered annuity. (Do not round intermediate calculations.)

Tax-sheltered method: Gross Pay -TSA =Taxable Income Tax $2,000- $200 =$1,800 Taxable Income- Tax=Net take-home $1,800-$594=$1,206

Ross Martin arrived at the following tax information: Tax Information Gross salary$56,145 Interest earnings 205 Dividend income 65 Standard deduction 12,000 Itemized deductions 11,250 Adjustments to income 1,200 What amount would Ross report as taxable income?

Taxable income =$56,145 + $205 + $65 − $1,200 − $12,000 =$43,215

Based on the following data, would Ann and Carl Wilton receive a refund or owe additional taxes? (Input the amount as a positive value. Round your intermediate calculations and final answer to the nearest whole number.) Tax Information Adjusted gross income $42,686 Standard deduction $24,000 Child care tax credit $100 Federal income tax withheld $1,490 Tax rate on taxable income 10 percent

Taxable income =Adjusted gross income - Standard deduction =$42,686 - $24,000 =$18,686 Income tax =Tax rate × Taxable income =0.10 × $18,686 =$1,869 Total tax liability =Income tax - Tax credits =$1,869 - $100 =$1,769 Tax due (refund) =Tax liability - Taxes paid =$1,769 - $1,490 =$279 Ann and Carl Wilton will owe additional taxes.

Ross Martin arrived at the following tax information: Tax Information Gross salary $57,595 Interest earnings 255 Dividend income 165 Standard deduction 12,000 Itemized deductions 11,350 Adjustments to income 1,700 What amount would Ross report as taxable income?

Taxable income=$57,595 + $165 + $255 − $1,700 − $12,000 =$44,315

Nicholas initially invested $2,400 in a technology company. The company recently paid annual dividends of $22 and his year-end investment value was $2,000. What was the rate of return on his investment?

The decrease in value is calculated by taking the ending investment value and subtracting the initial investment and adding the annual dividends [{($2,000-$2,400) + $22} = -$378]. Next, the total decrease is divided by the amount of the initial investment [(-$378/$2,400) = -15.75%] in order to calculate the rate of return.

According to the example in the video, what factors are located on the right side of the Morningstar research report for the Vanguard 500 Index Fund?

The factors located on the right side of the form are information regarding Morningstar risk measures and information about the investments within the fund in the "Style Map" section.Information regarding Morningstar risk measures and Information about the investments of the fund in the "Style Map" section.

Greg initially invested $7,000 in a transportation company. The company recently paid annual dividends of $86 and his year-end investment value was $8,340. What was the rate of return on his investment?

The increase in value is calculated by taking the ending investment value and subtracting the initial investment and adding the annual dividends [{($8,340-$7,000) + $86} = $1,426]. Next, the sum is divided by the amount of the original investment [($1,426/$7,000) = 20.37%] in order to calculate the rate of return.

Which one of the following is a true statement regarding the components of the risk factor?

The interest rate risk associated with corporate bonds is the result of changes in the interest rates in the economy.

Becky has 25/50/10 automobile insurance coverage. If two other people are awarded $35,000 each for injuries in an auto accident in which Becky was judged at fault, how much of this judgment would the insurance cover?

The maximum amount the insurance company will pay is $25,000 per person with a maximum of $50,000 per accident for all persons.

According to the video, what are the other fees that fund investors must consider in addition to a load charge?

The video provides 3 other fees that fund investors must consider in addition to a load charge, including the contingent deferred sales load, a management fee, and a 12b-1 fee. Contingent Deferred Sales Load and Management Fee

If a bond has increased or decreased in value, one option for the bondholder is to keep the bond until maturity. What is the other option discussed in the video?

The video states the options for bondholders are to sell the bond at its current price or to keep the bond until maturity.To sell the bond at its current price.

Patricia McDonald has determined the following information about her own financial situation. Her checking account is worth $500 and her savings account is worth $1,600. She owns her own home that has a market value of $98,000. She has furniture and appliances worth $13,000 and a laptop worth $3,100. She has a car worth $11,000 and owes $9,500 on her auto loan. She has also purchased some stock worth $5,200 and she has a retirement account worth $40,000. What is the total value of her assets?

Total Assets = $500 + $1,600 + $98,000 + $13,000 + $3,100 + $11,000 + $5,200 + $40,000 = $172,400

When preparing her monthly budget, Maria Kent has projected income of $4,300. Each month she pays $1,100 in rent, $55 for life insurance, and $220 for her auto loan. What percentage of her budget goes for these fixed expenses?

Total Fixed expenses / projected income = ($1,100 + $55 + $220) / $4,300 = $1,375 / $4,300 = 0.32 = 32%

Ben Carmichael has been making contributions into an individual retirement account for his retirement. His contributions are tax deductible (based on his tax filing status and income) as his employer does not offer a retirement plan. What type of individual retirement account does he have?

Traditional IRA

You have $50,000 in your retirement fund that is earning 5.5 percent per year, compounded quarterly. How many dollars in withdrawals per month would reduce this nest egg to zero in 20 years? (Use Exhibit 18-16)

Withdrawal rate= $340 A withdrawal rate of $340 a month will reduce the $50,000 nest egg to zero in 20 years given an interest rate of 5.5 percent, compounded quarterly.

Based on Exhibit 9-9, or using a financial calculator, what would be the monthly mortgage payments for each of the following situations? (Round time value factor and final answers to 2 decimal places.) a.$120,000, 15-year loan at 4.5 percent. b.$86,000, 30-year loan at 5 percent. c.$105,000, 20-year loan at 6 percent. What relationship exists between the length of the loan and the monthly payment? How does the mortgage rate affect the monthly payment? d-1.Longer mortgage terms mean a ________ monthly payment. d-2.For increase in mortgage rate ________ monthly payment is required.

a.$7.65 × 120 = $918.00 b.$5.37 × 86 = $461.82 c.$7.16 × 105 = $751.80 d-1. lower d-2. higher d. Longer mortgage terms mean a lower monthly payment. As rates increase, a higher monthly payment is required.

Using the tax rate schedule in Exhibit 4-6, determine the amount of taxes for the following taxable income amounts: Federal Tax Rate Schedule a) Married Filing Jointly: Taxable income $50,000. b) Married Filing Jointly: Taxable income $70,000. c) Married Filing Jointly: Taxable income $95,000.

a.($50,000 − $19,050) = $30,950 × 12% = $3,714 + $1,905 = $5,619 b.($70,000 − $19,050) = $50,950 × 12% = $6,114 + $1,905 = $8,019 c.($95,000 − $77,400) = $17,600 × 22% = $3,872 + $8,907 = $12,779

The main goal of personal financial planning is managing your money to:

achieve personal economic satisfaction.

The business hours and ATM locations of a financial institution refer to the ____________ feature when selecting a financial institution.

convenience

The Truth in Savings law requires that financial institutions:

disclose annual percentage yield on savings accounts.

Joan Martin expects interest rates to decline over the next few months. To achieve her long-term financial goals, she will trade off liquidity for a higher return by using a:

five-year certificate of deposit.

If Lola Harper had the following itemized deductions, should she use Schedule A or the standard deduction? The standard deduction for her tax situation is $12,000. Tax Deductions Donations to church and other charities$6,050 Medical and dental expenses exceeding 10 percent of adjusted gross income 2,400 State income tax 4,690 Lola Harper should use the__________of ____________

itemized deductions of $13,140 Itemized deductions =$6,050 + $2,400 + $4,690 =$13,140 The itemized deductions are greater than the standard deduction of $12,000, so Lola should use Schedule A to itemize her deductions.

The "head of household" filing status is for someone who is:

unmarried and has a dependent child.

The Multiple of Income method of determining life insurance needs:

uses your annual income as the sole factor.