FIN 300 Exam 1 Part 4

If a person spends $20 a week on coffee (assume $1,000 a year), what would be the future value of that amount over 10 years if the funds were deposited in an account earning 3 percent? Use Exhibit 1-B. (Round your discount factor to 3 decimal places and final answer to the nearest whole dollar.)

$1,000 × 11.464 = $11,464

Carrie bought a house five years ago for $150,000. At that time she borrowed $140,000 from her bank. The house is now worth $162,000. Her PMI will automatically be dropped when her mortgage balance drops to:

$117,000. Per the Homeowners Protection Act, PMI must be terminated automatically when a home owner's equity reaches 22% of the property value at the time the mortgage was executed. The mortgage would then be $150,000 × (1 − 0.22) = $117,000.

Crystal is looking for a new apartment. Given the information below, what are her total annual costs associated with renting? Monthly rent payments$ 1,000 Annual renter's insurance$ 250 Annual interest lost on security deposit$ 20 Value of apartment$ 150,000

$12,270 (Monthly rent payments × 12 months) + Annual renter's insurance + Annual interest lost on security deposit = ($1,000 × 12 months) + $250 + $20 = $12,270.

Brett bought a house five years ago for $150,000. At that time, he borrowed $140,000 from his bank. The house is now worth $162,000. The current value of his mortgage must be no higher than_______for him to request termination of his PMI policy.

$126,360 Once his equity has increased to 22% of the current market value, he can request that PMI be cancelled. He may request termination of PMI when his mortgage balance reaches $162,000 × (1 − 0.22) = $126,360.

Given the information below, what is the total cost of renting per year? Annual rent payments$ 14,400 Annual renter's insurance$ 300 Annual interest lost on security deposit$ 10 Value of apartment$ 150,000

$14,710 Total annual cost of renting = Annual rent payments + Annual renter's insurance + Annual interest lost on security deposit = $14,400 + $300 + $10 = $14,710.

If you borrow $16,000 with a 5 percent to be repaid in six equal payments at the six equal payments at the end of the next 6 years, what would be the amount of each payment? Use Exhibit 1-D. (Round your PVA factor to 3 decimal places and final answer to 2 decimal places.)

$16,000/5.076 = $3,152.09

Marcus can afford a monthly mortgage payment of $900. If he is eligible for a 30-year, 5 percent mortgage (where the mortgage factor is 5.37), how much of a mortgage loan can he afford?

$167,597.77 Affordable mortgage amount = (affordable monthly mortgage payment/mortgage factor) × 1,000; thus, = ($900/5.37) × 1,000 = $167,597.77

Given the information here, what is the annual cost of owning the home? Home value$ 300,000 Annual mortgage payments$ 19,200 Annual property taxes$ 4,800 Annual homeowner's insurance$ 1,200 Estimated maintenance and repairs 1% of home value Growth in equity$ 3,000 Tax savings (mortgage interest and property tax)$ 2,800 Estimate annual appreciation 1.5% of home value

$17,900 Total annual cost of owning = (Annual mortgage payments + Annual property taxes + Annual homeowner's insurance + Estimated maintenance and repairs) − (Growth in equity + Tax savings + Estimated annual appreciation) = [$19,200 + $4,800 + $1,200 + (1% × $300,000)] − [$3,000 + $2,800 + (1.5% × $300,000)] = $28,200 − $10,300 = $17,900.

If you have a $150,000, 30-year, 5 percent mortgage, how much of your first monthly payment of $805.23 would go toward principal?

$180.23 Interest = Principal × Interest rate × Time = $150,000 × 5% × 1 month/12 months = $625.00. Principal = Total payment − Interest $805.23 − $625.00 = $180.23.

Ben Collins plans to buy a house for $182,000. If the real estate in his area is expected to increase in value 3 percent each year, what will its approximate value be five years from now? Use Exhibit 1-A. (Round your FV factor to 3 decimal places and final answer to the nearest whole dollar.)

$182,000 × 1.159 = $210,938

Timothy Carter went out to eat with his girlfriend at a fancy restaurant. When he tried to pay the bill with his Mastercard credit card, he was told that the restaurant accepted only cash or American Express. His waiter suggested that he use the ATM across the street to withdraw cash using his credit card. Tim did as suggested and didn't pay attention to any fees until he received his credit card statement one month later. He was shocked to see the total fees (2.0 percent cash advance), and his APR was increased to 21.5%. Given the cost of the meal ($190) plus the associated fees, how much did his meal cost him?

$197.20 Cash advance fee = 2.0% × $190 = $3.80 Interest for one month = 21.5% APR × $190/12 months = $40.85/12 = $3.40 Total cost for one month = $3.80 + $3.40 = $7.20 Total cost for meal + fees = $190 + $7.20 = $197.20

Carla Lopez deposits $2,100 a year into her retirement account. If these funds have average earnings of 5 percent over the 40 years until her retirement, what will be the value of her retirement account? Use Exhibit 1-B. (Round your discount factor to 3 decimal places and final answer to the nearest whole dollar.)

$2,100 × 120.800 = $253,680

Tran Lee plans to set aside $2,500 a year for the next eight years, earning 4 percent. What would be the future value of this savings amount? Use Exhibit 1-B. (Round your discount factor to 3 decimal places and final answer to 2 decimal places.)

$2,500 × 9.214 = $23,035.00

What would be the yearly earnings for a person with $3,000 in savings at an annual interest rate of 3 percent?

$3,000 × 0.03 = $90

If Vince charged $350 on his credit card with 18 percent APR and he paid his balance in full within the grace period, how much was he required to pay?

$350.00 No interest is charged during the grace period.

A family spends $48,000 a year for living expenses. If prices increase 2 percent a year for the next two years, what amount will the family need for their annual living expenses after two years? Only use the FV factors obtained in Exhibit 1-A to calculate this solution. (Round your FV factor to 3 decimal places and final answer to the nearest whole dollar.)

$48,000 × 1.040 = $49,920

Peter borrowed $300. He paid $35 interest and a service charge of $18. What is his finance charge?

$53 Finance charge = Interest + Service charge = $35 + $18 = $53.

Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $6,000 available each year for various school and living expenses. Use Exhibit 1-D. If he earns 5 percent on his money, how much must he deposit at the start of his studies to be able to withdraw $6,000 a year for three years? (Round PVA factor to 3 decimal places and final answer to the nearest whole dollar.)

$6,000 × 2.723 = $16,338

If you have a $150,000, 30-year, 5 percent mortgage, how much of your first monthly payment of $805.23 would go toward interest?

$625.00 Interest = Principal × Interest rate × Time = $150,000 × 5% × 1 month/12 months = $625.00.

Acme Home Lending offers home equity loans up to 75 percent of the home value for its customers. If Sally Johnson has a home valued at $170,000 and a current mortgage of $51,000, how much can she borrow in a home equity loan from Acme?

$76,500 Maximum home equity loan = Home value × 75% − Mortgage balance = $170,000 × 75% − $51,000= $76,500.

If you desire to have $8,500 for a down payment for a house in four years, what amount would you need to deposit today? Assume that your money will earn 6 percent. Use Exhibit 1-C. (Round your PV factor to 3 decimal places and final answer to the nearest whole dollar.)

$8,500 × 0.792 = $6,732

In 2019, selected automobiles had an average cost of $16,500. The average cost of those same automobiles is now $20,295. What was the rate of increase for these automobiles between the two time periods? (Enter your answer as a percentage.)

($20,295 − $16,500)/$16,500 = 0.23, or 23%

Hannah has liabilities totaling $41,250 (excluding her mortgage of $137,483). Her net worth is $55,000. What is her debt-to-equity ratio? (Round your answer to 2 decimals)

0.75 $41,250/$55,000 = 0.75.

Timothy Carter has net monthly income of $4,100. He has a monthly auto loan payment of $425, a student loan payment of $195, a mortgage payment of $1,300, and a credit card minimum payment of $60. What is his debt payments-to-income ratio? (Round your answer to 1 decimal)

16.6% ($425 + $195 + $60)/$4,100 = 0.1659 or 16.59%, which rounds to 16.6%.

Rachel Johnson has net monthly income of $3,140. She has a monthly auto loan payment of $360, a student loan payment of $195, and a credit card minimum payment of $65. What is her debt payments-to-income ratio?

19.75% ($360 + $360 + $65)/$3,140 = 0.1975, or 19.75%.

Frank and Diane want to buy a house. Which of the following do they need before they purchase a house?

A down payment

Opal is a real estate agent who represents the buyer as well as the seller. In some states, the buyers are required to sign a disclosure acknowledging that they are aware that Opal is working as:

A dual agent.

If you are selling your house by owner, you should still enlist the assistance of:

A lawyer or title company to assist with the contract, closing, and other legal matters.

Which of the following gives the landlord the right to take legal action against a tenant for nonpayment of rent or destruction of property?

A lease

Ursula wants to have an interest rate that can increase or decrease during the life of her loan. She should look for a(n):

ARM.

What should a home buyer consider when evaluating a house?

All of these should be evaluated. Zoning laws Location of businesses and future construction projects School system Property values of the community

Donald wanted to buy a house in the country, so he sought advice from his cousin Evan. Evan explained the advantages and disadvantages of home ownership; however, he had some information incorrect. Which of the following is incorrect?

An advantage is that the down payment required is typically less than the security deposit for a rental.

When Nancy buys her house, the mortgage company will usually conduct:

An appraisal.

An ATM with a service fee of $2 is used by a person 100 times in a year. What would be the future value in 6 years (use a 3 percent rate) of the annual amount paid in ATM fees? Use Exhibit 1-B. (Round discount factor to 3 decimal places and final answer to 2 decimal places.)

Annual fee = Service fee per transaction × Number of transactions per year= $2 × 100= $200 Future value = Annual fee × FV annuity factor= $200 × 6.468= $1,293.60

A payday loan company charges 2 percent interest for a four-week period. What would be the annual interest rate from that company? (Assume an even 52 weeks per year. Enter your answer as a percent rounded to 1 decimal place.)

Annual interest rate = Interest rate per period × Number of periods per year= 0.020 × (52/4)= 0.260, or 26.0%

What would be the annual percentage yield for a savings account that earned $69 in interest on $1,000 over the past 365 days? (Enter your answer as a percent rounded to 1 decimal place.)

Annual percentage yield = Annual interest/Principal= $69/$1,000= 0.069, or 6.9%

What would be the average tax rate for a person who paid taxes of $8,281.49 on taxable income of $65,260? (Enter your answer as a percent rounded to 2 decimal places.)

Average tax rate = Total taxes/Taxable income= $8,281.49/$65,260= 0.1269, or 12.69%

Fran Powers created the following budget and reported the actual spending listed. Calculate the variance for each of these categories, and indicate whether it was a deficit or a surplus.

Budgeted amount − Actual amount = Variance Food: $400 − $331 = $69 Transportation: $339 − $386 = −$47 Housing: $965 − $996 = −$31 Clothing: $132 − $178 = −$46 Personal: $324 − $249 = $75 A positive variance indicates a budget surplus while a negative variance indicates a budget deficit.

For the following situations, calculate the cash surplus or deficit.

Cash inflows − Cash outflows = Difference $3,600 − $3,253 = $347 $4,812 − $4,894 = −$82 $4,442 − $4,213 = $229 A positive difference indicates a cash surplus while a negative difference indicates a cash deficit.

Paul and Lora built their home. When they researched contractors, they should have considered all of the following except:

Contractors' property tax payments during construction.

Which of the following is NOT a benefit of home ownership?

Costs of maintenance, repairs, and home improvements

Carl Lester has liquid assets of $3,105 and current liabilities of $3,636. What is his current ratio? (Input ratio as a decimal. Round your answer to 2 decimal places.)

Current ratio = Liquid assets/Current liabilities= $3,105/$3,636= 0.85

The Fram family has liabilities of $139,000 and a net worth of $352,000. What is their debt ratio? (Input ratio as a decimal. Round your answer to 3 decimal places.)

Debt ratio = Liabilities/Net worth= $139,000/$352,000= 0.395

Julia Sims has $36,000 of adjusted gross income and $5,760 of medical expenses. She expects to itemize her tax deductions this year. The most recent tax year has a medical expenses floor of 10 percent. How much of a tax deduction for medical expenses will Julia be able to take?

Deductible medical expenses = Total medical expenses - (10% of adjusted gross income)= $5,760 - (0.1 × $36,000)= $2,160 If the deductible medical expenses are equal to or less than 10 percent of adjusted gross income, then there is no deduction for medical expenses.

A certificate of deposit often charges a penalty for withdrawing funds before the maturity date. If the penalty involves two months of interest, what would be the amount for early withdrawal on a CD paying 4 percent and valued at $16,000? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Early withdrawal penalty = Account value × Annual interest rate × (Number of penalty months/12)= $16,000 × 0.04 × 2/12= $106.67

Pauline just submitted an offer on her dream home. As evidence of good faith, she also included:

Earnest money

Allison has returned to school after five years out of the work force. She is taking one course at the local university for a cost of $1,460. To minimize her taxes, should she take a tuition and fees deduction or an education credit? (Assume a 15 percent tax rate.) (Assume the education credit will equal the entire cost of the course.)

Education credit Tuition and fees deduction = $1,460 × 0.15= $219Education credit = $1,460 Thus, the education credit is the best option.

Quinn applied for a loan. He provided information about his finances and the home he plans to purchase. Results of the affordability mortgage calculation included all of the following except:

Expected maintenance costs.

Paul is looking for a low interest, low-down-payment loan for his first home, but he is not a veteran. He might be eligible for a(n):

FHA loan

Wendy Brooks prepares her own income tax return each year. A tax preparer would charge her $135 for this service. Over a period of 11 years, how much does Wendy gain from preparing her own tax return? Assume she can earn 3 percent on her savings. Use Exhibit 1-B. (Round discount factor to 3 decimal places and final answer to 2 decimal places.)

FV = Annual savings × Future value annuity factor= $135 × 12.808= $1,729.08

Noor Patel has had a busy year! She decided to take a cross-country adventure. Along the way, she won a new car on The Price Is Right (valued at $13,500) and $600 on a scratch-off lottery ticket (the first time she ever played). She also signed up for a credit card to start the trip and was given a sign-up bonus of $250. How much from these will she have to include in her federal taxable income?

Federal taxable income = Prizes + Lottery winnings + Credit card sign-up bonus= $13,500 + $600 + $250= $14,350

Kara George received a $14,000 gift for graduation from her uncle. If she deposits this in an account paying 4 percent, what will be the value of this gift in 10 years? Use Exhibit 1-A. (Round FV factor to 3 decimal places and final answer to the nearest whole dollar.)

Future value = $14,000 × 1.480 = $20,720

Franklin wants to sell his house himself. Which of the following is NOT good advice about his sale?

He should show the house only when he is home alone.

Lonnie wanted to sell his house but didn't know what price to ask. He should consider all of the following except:

His original cost.

When Ingrid was selling her house, she contacted Gabe, her real estate agent, to help her with the sale. Gabe's services included all of the following except:

Home appraisal.

Janie has a joint account with her mother with a balance of $618,000. Based on $250,000 of Federal Deposit Insurance Corporation coverage, what amount of Janie's savings would not be covered by deposit insurance?

Janie's portion of joint account = 0.50 × $618,000= $309,000 Uninsured portion of Janie's account = Janie's portion of joint account − FDIC coverage amount= $309,000 − $250,000= $59,000

If 420,000 people each receive an average refund of $2,100, based on an annual interest rate of 3 percent, what would be the lost annual income from savings on those refunds?

Lost annual income = Number of refunds × Average refund amount × Interest rate= 420,000 × $2,100 × 0.03= $26,460,000

Private mortgage insurance:

Must be terminated automatically when the homeowner's equity reaches 22% of the property value at the time the mortgage was executed.

Veronica has had a variable-rate mortgage for several years. Unfortunately, the monthly mortgage payments have not covered her interest owed. As a result, her home equity is decreasing because of:

Negative amortization.

What is the annual opportunity cost of a checking account that requires a $270 minimum balance to avoid service charges? Assume an interest rate of 2.5 percent. (Round your answer to 2 decimal places. Input the amount as a positive value.)

Opportunity cost = Required minimum balance × Interest rate= $270 × 0.025= $6.75

Trenton wants to buy a house but can provide only a 10 percent down payment. He probably will be required to have:

PMI.

During the closing for a home purchase, you will normally do which of the following?

Pay all closing costs, settle last-minute details, and sign documents

Yvette has a flexible-rate mortgage that limits the amount to which her monthly payments can rise. This feature is called a(n):

Payment cap.

Brenda plans to reduce her spending by $70 a month. What would be the future value of this reduced spending over the next 12 years? (Assume an annual deposit to her savings account and an annual interest rate of 6 percent.) Use Exhibit 1-B. (Round discount factor to 3 decimal places and final answer to 2 decimal places.)

Reduction in annual spending = Reduction in monthly spending × 12= $70 × 12= $840 Future value of spending reduction = Reduction in annual spending × Future value annuity factor= $840 × 16.870= $14,170.80

Jim wants to make an offer to buy an older house. At this point, he should:

Set up a home inspection.

Assume Samantha Jones had the following itemized deductions: Donations to church and other charities$ 2,950 Medical and dental expenses exceeding 10 percent of adjusted gross income$ 1,750 Mortgage interest$ 3,550 State income tax$ 1,280 Should she use the itemized deduction or the standard deduction? The standard deduction for her tax situation is $12,400.

Standard deduction Itemized deductions = Donations + Medical expenses in excess of 10% of AGI + Mortgage interest + State income tax= $2,950 + $1,750 + $3,550 + $1,280= $9,530 The standard deduction of $12,400 is more than itemizing deductions which totaled $9,530.

Walt has decided to sell the home he has lived in for 50 years. The house has two bedrooms on the first floor, a finished basement, and a finished attic with a low ceiling. To prepare his home for sale, he should:

Take steps to remove excess furniture to make areas look less cluttered and therefore larger.

If $4,359 were withheld during the year and taxes owed were $4,140, would the person owe an additional amount or receive a refund? What is the amount?

Tax due (refund) = Total tax − Tax withheld= $4,140 − $4,359= −$219

If a person in a 32 percent tax bracket makes a deposit of $4,400 to a tax-deferred retirement account, what amount would be saved on current taxes?

Tax savings = Annual retirement contribution × Tax rate= $4,400 × 0.32= $1,408

Would you prefer a fully taxable investment earning 12.6 percent or a tax-exempt investment earning 9.2 percent? (Assume a 30 percent tax rate.)

Tax-exempt investment earning 9.2 percent. Fully taxable investment:After-tax earnings = Pretax earnings × (1 − Tax rate)= 0.126 × (1 − 0.30)= 0.0882, or 8.82% Tax-exempt investment:After-tax earnings = Pretax earnings= 9.20% You should prefer the investment with the higher after-tax earnings.

With a 28 percent marginal tax rate, would a tax-free yield of 6.6 percent or a taxable yield of 8.5 percent give you a better return on your savings?

Tax-free yield:After-tax yield = 6.6%Taxable yield:After-tax yield = Taxable yield × (1 − Tax rate)= 0.085 × (1 − 0.28)= 0.0612, or 6.12%The better return is the option that has the higher after-tax yield.

Based on the following data, would Beth and Roger Simmons receive a refund or owe additional taxes? What is the amount? (Do not round any intermediate calculations. Enter the amount as a positive value rounded to 2 decimal places.) Adjusted gross income$ 56,520 Standard deduction$ 24,800 Credit for child and dependent care expenses$ 780 Federal income tax withheld$ 7,346 Tax rate on taxable income15 percent

Taxable income would be $31,720 ($56,520 − $24,800) times the tax rate of 15 percent equals $4,758.00 less a tax credit of $780 gives a tax liability of $3,978.00. When compared to federal tax withheld ($7,346), the result is a refund of $3,368.00 ($7,346 − $3,978.00).

The primary benefit of a home equity loan is:

The deductibility of the loan interest on federal taxes.

Kelly selected a home and submitted an offer to the seller. Which of the following is correct?

The seller may reject the offer and choose to provide a counteroffer.

Major factors that affect the affordability of your mortgage include all of the following except:

The size of the home

Which of the following is NOT correct regarding real estate agents?

They require that you conduct your own showings.

Georgina and Henry have a family and are looking at houses. Which of the following is correct?

They should assess the school system in the area they want to live.

If a person has ATM fees each month of $21 for five years, what would be the total cost of those banking fees?

Total Cost = Monthly fee × 12 × Number of years= $21 × 12 × 5= $1,260

Use the following items to determine the total assets, total liabilities, net worth, total cash inflows, and total cash outflows. Rent for the month$ 700 Monthly take-home salary$ 2,235 Spending for food$ 370 Cash in checking account$ 460 Savings account balance$ 1,900 Balance of educational loan$ 2,220 Current value of automobile$ 8,900 Telephone bill paid for month$ 70 Credit card balance$ 240 Loan payment$ 90 Auto insurance$ 240 Household possessions$ 3,500 Video equipment$ 2,375 Payment for electricity$ 95 Lunches/parking at work$ 185 Donations$ 170 Personal computer$ 1,250 Value of stock investment$ 885 Clothing purchase$ 115 Restaurant spending$ 135

Total assets = Savings account balance + Current value of automobile + Video equipment + Personal computer + Cash in checking account + Household possessions + Value of stock investment= $1,900 + $8,900 + $2,375 + $1,250 + $460 + $3,500 + $885= $19,270 b.Total liabilities = Credit card balance + Educational loan balance= $240 + $2,220= $2,460 c.Net worth = Total assets − Total liabilities= $19,270 − $2,460= $16,810 d.Total cash inflows = Monthly take-home salary= $2,235 e.Total cash outflows = Rent for the month + Spending for food + Auto insurance + Lunches/parking at work + Clothing purchase + Telephone bill paid for month + Loan payment + Payment for electricity + Donations + Restaurant spending= $700 + $370 + $240 + $185 + $115 + $70 + $90 + $95 + $170 + $135= $2,170

Daniel Simmons arrived at the following tax information: Gross salary$ 53,360 Interest earnings$ 210 Dividend income$ 150 Adjustments to income$ 1,070 Standard deduction$ 12,400 What amount would Daniel report as taxable income?

Total income = Gross salary + Dividend income + Interest earnings= $53,360 + $150 + $210= $53,720 Adjusted gross income = Total income − Adjustments= $53,720 − $1,070= $52,650 Taxable income = Adjusted gross income − Standard Deductions= $52,650 − $12,400= $40,250

Reginald Sims deposits $4,000 each year in a tax-deferred retirement account. If he is in a 22 percent tax bracket, by what amount would his tax be reduced over a 15-year time period?

Total tax savings = (Annual retirement contribution × Tax rate) × Number of years= ($4,000 × 0.22) × 15= $13,200

Elaine purchased her living unit in a building with five other separate units. She purchased a:

Townhouse.

As a result of being an armed services veteran, Dan should be eligible for a(n):

VA loan.

Which of the following is NOT correct?

When showing the home, Caryn's suggestion to open drapes but keep lights turned off to conserve energy will give her property a positive image.

The future value of $490 four years from now at 10 percent. (Round your factor to 3 decimal places and final answer to 2 decimal places.) b. The future value of $275 saved each year for 9 years at 6 percent. (Round your factor to 3 decimal places and final answer to 2 decimal places.) c. The amount a person would have to deposit today (present value) at a 9 percent interest rate to have $2,300 five years from now. (Round your factor to 3 decimal places and final answer to 2 decimal places.) d. The amount a person would have to deposit today to be able to take out $600 a year for 7 years from an account earning 6 percent. (Round your factor to 3 decimal places and final answer to 2 decimal places.)

a. $490 × 1.464 = $717.36 (Exhibit 1-A) b. $275 × 11.491 = $3,160.03 (Exhibit 1-B) c. $2,300 × 0.650 = $1,495.00 (Exhibit 1-C) d. $600 × 5.582 = $3,349.20 (Exhibit 1-D)

Using the Rule of 72, approximate the following amounts. a. If the value of land in an area is increasing 5 percent a year, how long will it take for property values to double? (Round your answer to 1 decimal place.) b. If you earn 8 percent on your investments, how long will it take for your money to double? (Round your answer to 1 decimal place.) c. At an annual interest rate of 4 percent, how long will it take for your savings to double? (Round your answer to 1 decimal place.)

a. 72/5 = 14.4 years b. 72/8 = 9.0 years c. 72/4 = 18.0 years

Using the tax table, determine the amount of taxes for the following situations: (Do not round intermediate calculations. Round your answers to 2 decimal places.) a. A head of household with taxable income of $61,000. b. A single person with taxable income of $37,400. c. Married taxpayers filing jointly with taxable income of $73,200.

a. A head of household with taxable income of $61,000: $14,100 × 0.10 = $1,410.00($53,700 − $14,101) × 0.12 = $4,751.88($61,000 − $53,701) × 0.22 = $1,605.78$1,410.00 + $4,751.88 + $1,605.78 = $7,767.66 b. A single person with taxable income of $37,400: $9,875 × 0.10 = $987.50($37,400 − $9,876) × 0.12 = $3,302.88$987.50 + $3,302.88 = $4,290.38 c. Married taxpayers filing jointly with taxable income of $73,200: $19,750 × 0.10 = $1,975.00($73,200 − $19,751) × 0.12 = $6,413.88$1,975.00 + $6,413.88 = $8,388.88

For each of these situations, determine the savings amount. Use the time value of money tables in Exhibit 1-A, Exhibit 1-B, and Exhibit 1-C. a. What would be the value of a savings account started with $600, earning 6 percent (compounded annually) after 13 years? (Round FV factor to 3 decimal places and final answer to the nearest whole dollar.) b. Brenda Young desires to have $15,000 eight years from now for her daughter's college fund. If she will earn 8 percent (compounded annually) on her money, what amount should she deposit now? Use the present value of a single amount calculation. (Round PV factor to 3 decimal places and final answer to the nearest whole dollar.) c. What amount would you have if you deposited $2,000 a year for 20 years at 7 percent (compounded annually)? (Round discount factor to 3 decimal places and final answer to the nearest whole dollar.)

a. FV = $600 × 2.133 = $1,280 (Exhibit 1-A) b. PV = $15,000 × 0.540 = $8,100 (Exhibit 1-C) c. FV = $2,000 × 40.995 = $81,990 (Exhibit 1-B)

Use future value and present value calculations (use Exhibit 1-A, Exhibit 1-B, Exhibit 1-C) to determine the following: a. The future value of a $950 savings deposit after seven years at an annual interest rate of 6 percent. (Round FV factor to 3 decimal places and final answer to 2 decimal places.) b. The future value of saving $2,500 a year for four years at an annual interest rate of 5 percent. (Round discount factor to 3 decimal places and final answer to 2 decimal places.) c. The present value of a $2,700 savings account that will earn 2 percent interest for three years. (Round PV factor to 3 decimal places and final answer to 2 decimal places.)

a. FV = $950 × 1.504 = $1,428.80 (Exhibit 1-A) b. FV = $2,500 × 4.310 = $10,775.00 (Exhibit 1-B) c. PV = $2,700 × 0.942 = $2,543.40 (Exhibit 1-C)

A bank that provides overdraft protection charges 12.5 percent for each $100 (or portion of $100) borrowed when an overdraft occurs. a. What amount of interest would the customer pay for a $360 overdraft? (Assume the interest is for the full amount borrowed for a whole year.) b. How much would be saved by using the overdraft protection loan if a customer has four overdraft charges of $40 each during the year?

a. Interest = Number of $100 increments × $100 × Interest rate= 4 × $100 × 0.125= $50 b. Savings = (4 × $40) − $50= $110

The Brandon household has a monthly income of $5,900 on which to base their budget. They plan to save 15 percent and spend 22 percent on fixed expenses and 46 percent on variable expenses. a. What amount do they plan to set aside for each major budget section? (Round your answers to 2 decimal places.) b. After setting aside these amounts, what amount would remain for additional savings or for paying off debts? (Round your intermediate calculations and final answer to 2 decimal places.)

a. Savings = Savings percent × Monthly income= 0.15 × $5,900= $885.00Fixed expenses = Fixed expenses percent × Monthly income= 0.22 × $5,900= $1,298.00Variable expenses = Variable expenses percent × Monthly income= 0.46 × $5,900= $2,714.00 b.Remaining amount = Monthly income − Savings − Fixed expenses − Variable expenses= $5,900 − $885.00 − $1,298.00 − $2,714.00= $1,003.00

A financial company that advertises on television will pay you $49,500 now for annual payments of $8,000 that you are expected to receive for a legal settlement over the next 10 years. Use Exhibit 1-D. a. What is the present value of the annual payments if you estimate the time value of money at 9 percent? (Round your PVA factor to 3 decimal places and final answer to the nearest whole dollar.) b. Should you accept this offer?

a.$8,000 × 6.418 = $51,344 b.You are only being offered $49,500 for an annuity that is worth $51,344 to you. You should not accept this offer.

Based on the following financial data, calculate the ratios requested. (Enter all answers as decimals. Round your answers to 4 decimal places.) Liabilities$ 8,000 Net worth$ 59,000 Liquid assets$ 5,000 Current liabilities$ 1,350 Monthly credit payments $ 660 Take-home pay$ 2,600 Monthly savings$ 150 Gross income$ 2,900

a.Debt ratio = Liabilities/Net worth= $8,000/$59,000= 0.1356 b.Current ratio = Liquid assets/Current liabilities= $5,000/$1,350= 3.7037 c.Debt-payments ratio = Monthly credit payments/Take-home pay= $660/$2,600= 0.2538 d.Savings ratio = Monthly savings/Gross income= $150/$2,900= 0.0517

For each of the following situations, compute the missing amount.

a.Net worth = Assets − Liabilities= $72,100 − $17,800= $54,300 b.Liabilities = Assets − Net worth= $91,500 − $24,300= $67,200 c.Net worth = Assets − Liabilities= $37,880 − $13,865= $24,015 d.Assets = Liabilities + Net worth= $39,845 + $58,854= $98,699

On December 30, you make a $4,500 charitable donation. a. If you are in the 12 percent tax bracket, how much will you save in taxes for the current year? (Assume your other itemized deductions exceed the standard deduction amount.) b. If you deposit that tax savings in a savings account for the next seven years at 9 percent, what will be the future value of that account? Use Exhibit 1-A. (Round FV factor to 3 decimal places. Round your answers to 2 decimal places.)

a.Tax savings = Charitable donation × Tax rate= $4,500 × 0.12= $540 b.FV of tax savings = Tax savings × FV factor= $540 × 1.828= $987.12

Based on the following data, determine the amount of total assets, total liabilities, and net worth. Liquid assets$ 4,570 Investment assets$ 9,040 Current liabilities$ 2,370 Household assets$ 94,890 Long-term liabilities$ 83,230

a.Total assets = Liquid assets + Investment assets + Household assets= $4,570 + $9,040 + $94,890= $108,500 b.Total liabilities = Current liabilities + Long-term liabilities= $2,370 + $83,230= $85,600 c.Net worth = Total assets − Total liabilities= $108,500 − $85,600= $22,900

Using the following balance sheet items and amounts, calculate the total liquid assets and total current liabilities. Money market account$ 3,600 Medical bills$ 422 Mortgage$ 148,000 Checking account$ 980 Retirement account$ 95,400 Credit card balance$ 689

a.Total liquid assets = Money market account + Checking account= $3,600 + $980= $4,580 b.Total current liabilities = Medical bills + Credit card balance= $422 + $689= $1,111

Ricky has a conventional mortgage. He can monitor the reduction of his loan balance through his payments by using _____ information.

amortization

Madeline wants to purchase a larger house. However, she has not yet sold her current home. She may want to include a(n) ________ in her offer.

contingency clause

When Sam applied for a loan, he was assured that his rate would not change if he closed within 30 to 90 days. Sam had a(n) ______ on the interest rate.

lock