Personal Finance Midterm

When creating a budget, it is important to:

"Pay yourself first" by setting aside savings before other expenses are budgeted.

Tanya received a $1,000 loan from the bank for a vacation. The bank is using the simple interest formula for this one-year, 9 percent loan. What is her total interest?

I = P × r × T = $1,000 × 0.09 × 1 year = $90.

If you have an interest rate subsidy from a home builder or real estate developer, you have a(n):

Buy-down.

Amanda and Jack are working on their taxes and need to determine which form to file. They had wages, interest, and dividends. In addition, they bought a house this past year and are thinking of itemizing their deductions. Which form should they use?

1040

Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $8,400 available each year for various school and living expenses. Use Exhibit 1-D. If he earns 4 percent on his money, how much must he deposit at the start of his studies to be able to withdraw $8,400 a year for three years?

23,310 8400 * 2.775 chart

The amount a person would have to deposit today to be able to take out $600 a year for 5 years from an account earning 8 percent.

2395.80 600 * 3.993 = 2395.80

The future value of a $1,400 savings deposit after eight years at an annual interest rate of 7 percent.

2405.2 1400 * 1.718 chart

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.

253,680 2100 * 120.800 chart

If you borrow $11,500 with a 9 percent interest rate to be repaid in six equal payments at the end of the next six years, what would be the amount of each payment? Use Exhibit 1-D

2563.53 11,500 / 4.486 chart

The amount a person would have to deposit today (present value) at a 7 percent interest rate to have $3,600 five years from now.

2566.80 3600 * 0.713 = 2566.8 0.713 found on chart

Kara George received a $15,500 gift for graduation from her uncle. If she deposits this in an account paying 5 percent, what will be the value of this gift in 11 years? Use Exhibit 1-A.

26,505 15,500 * 1.710 chart

FICO scores generally range from:

300 to 850.

The present value of a $3,600 savings account that will earn 4 percent interest for four years.

3078.00 3600 * 0.855 chart

Tran Lee plans to set aside $4,000 a year for the next eight years, earning 4 percent. What would be the future value of this savings amount? Use Exhibit 1-B.

36,856 4000 * 9.214 chart

If Vince charged $380 on his credit card with 21 percent APR and he paid his balance in full within the grace period, how much was he required to pay?

380 No interest is charged during the grace period.

Zoe signed the back of her check with the words "for deposit only." She used a(n):

Restrictive endorsement.

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

Set up a home inspection.

The number of personal financial records a household has to organize may seem overwhelming. How long should you keep copies of your tax returns?

Seven years

The amount printed on a label with the suggested retail price that is posted on a vehicle is called the:

Sticker price.

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 $1,600. 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.)

Tuition and fees deduction = $1,600 × 0.15 = $240 Education credit = $1,600 Thus, the education credit is the best option.

Which of the following is NOT correct?

Using credit can increase the amount of money that will be available to spend in the future.

All of the following are fixed expenses except:

Utilities.

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 $145 for this service. Over a period of 8 years, how much does Wendy gain from preparing her own tax return? Assume she can earn 4 percent on her savings. Use Exhibit 1-B.

FV = Annual savings × Future value annuity factor= $145 × 9.214= $1,336.03

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 $13,400) and $800 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 $200. 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 = $13,400 + $800 + $200 = $14,400

Paul bought some bad gasoline that damaged the gas tank of his vehicle.

He should provide the gas station with documentation of his purchase and all repair costs.

The major function of personal financial planning is to:

Achieve personal economic satisfaction.

Daniel Simmons arrived at the following tax information: Gross salary$ 57,840 Interest earnings$ 210 Dividend income$ 150 Adjustments to income$ 1,160 Standard deduction$ 12,400 What amount would Daniel report as taxable income?

44,640 gross salary + dividend income - std deduction + interest earnings - adj to income

If you desire to have $9,000 for a down payment for a house in eight years, what amount would you need to deposit today? Assume that your money will earn 3 percent. Use Exhibit 1-C.

7101 9000 * 0.789 chart

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.

Which of the following provides the tenant protection from rent increases?

A lease

Which of the following is an example of closed-end credit?

A mortgage loan

A prearranged loan for a specified amount that a consumer can use by writing a special check is known as:

A revolving check credit.

Jennifer purchased a prepaid card for transit fares and highway tolls. What kind of card did she purchase?

A stored-value card

A legal agreement that provides for the management and control of assets by one party for the benefit of another is known as:

A trust.

Which of the following short-term goals is stated most clearly using the SMART approach?

A. Within the next 6 months, buy a car for less than $15,000.

The Consumer Credit Counseling Service:

Aids families with serious debt problems by helping them to manage their money better and set up a realistic budget.

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.

Will wants to open an account with $500 that will allow him easy access to his funds (by checks, ATMs, or debit card usage) from many locations. He also wants to earn at least a low interest rate and have federal deposit insurance. What kind of account should he open?

An interest-earning checking account

How long should you keep documents relating to investments?

As long as you own these items

Suppose you borrow $525 for one year and pay a finance charge of $35. If you repay this loan all at once after one year, what is your average balance?

Average balance = (Loan balance in first month + Loan balance in last month)/2 = ($525 + $525)/2 = $525 borrowed since it is available during the entire loan period.

What would be the average tax rate for a person who paid taxes of $7,751.51 on taxable income of $61,180?

Average tax rate = Total taxes/Taxable income = $7,751.51/$61,180 = 0.1267 or 12.67%

The tax based on the total tax due divided by taxable income is called the:

Average tax rate.

George Franklin paid taxes of $4,375 on a taxable income of $32,000. What was his average tax rate?

Average taxes = Taxes paid/Taxable income = $4,375/$32,000 = 0.1367, or 13.67%; rounded to 13.7%.

The price of a leased vehicle is known as the:

Capitalized cost.

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 (3.0 percent cash advance), and his APR was increased to 21.0%. Given the cost of the meal ($200) plus the associated fees, how much did his meal cost him?

Cash advance fee = 3.0% × $200 = $6.00 Interest for one month = 21.0% APR × $200/12 months = $42.00/12 = $3.50 Total cost for one month = $6.00 + $3.50 = $9.50 Total cost for meal + fees = $200 + $9.50 = $209.50

Logan paid a bill with a special form. He received this form at his financial institution and had to pay the amount of the check plus a fee. He used a:

Cashier's check.

Earning interest on previously earned interest is called:

Compounding.

Annie was required to clarify or document minor questions about her tax form by a mail inquiry. She participated in a(n):

Correspondence audit.

Which of the following ratios shows the relationship between debt and net worth?

Debt ratio

Julia Sims has $24,000 of adjusted gross income and $3,840 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) = $3,840 - (0.1 × $24,000) = $1,440 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.

When evaluating your credit application, a lender may NOT:

Deny you credit if you receive public assistance.

All of the following are variable operating costs for a vehicle except:

Depreciation

Present value computations are also referred to as:

Discounting

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 5 percent and valued at $34,000? (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) = $34,000 × 0.05 × 2/12 = $283.33

Using the services of financial institutions or financial specialists (such as insurance agents, certified financial planners or investment advisers) to seek relevant information is done in which step in the financial planning process?

Evaluate your alternatives.

A tax due on the purchase of gasoline is called a(n):

Excise tax.

An example of fixed expenses are:

Home rental payments.

Tanya received a $1,010 loan from the bank for a vacation. The bank is using the simple interest formula for this one-year, 7 percent loan. What is her total interest?

I = P × r × T = $1,010 × 0.0700 × 1 year = $70.70.

Fredrick received a $1,900 loan from the bank for a new appliance. The bank is using the simple interest formula for this two-year, 9 percent loan. What is his total interest?

I = P × r × T = $1,900 × 9.0% × 2 years = $342.00.

A certificate of deposit that has earnings based on the stock market is called a(n):

Indexed CD.

Credit reports can be obtained for all of the following reasons except:

Inquiry by a neighbor.

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?

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

If you have a $264,000, 30-year, 5 percent mortgage, how much of your first monthly payment of $1,419 would go toward principal?

Interest = Principal × Interest rate × Time = $264,000 × 5% × 1 month/12 months = $1,100.00. Principal = Total payment − Interest = $1,419.00 − $1,100.00 = $319.00.

Paul borrowed $390 to be repaid in one year. He paid 10 percent interest and a service charge of $22. What is his finance charge?

Interest = $390 × 10% = $39. Finance charge = Interest + Service charge = $39 + $22 = $61.

If you have a $258,000, 30-year, 5 percent mortgage, how much of your first monthly payment of $1,386.75 would go toward interest?

Interest = Principal × Interest rate × Time = $258,000 × 5% × 1 month/12 months = $1,075.00.

Becka borrowed $100 from her cousin at the rate of 6 percent per year. If the inflation rate was 2 percent that year, what is her cousin's actual rate of return on the loan?

Interest rate − Inflation rate = Actual rate of return = 6% − 2% = 4%.

Becka borrowed $500 from her cousin at the rate of 9 percent per year. If the inflation rate was 2.9 percent that year, what is her cousin's actual rate of return on the loan?

Interest rate − Inflation rate = Actual rate of return = 9.00% − 2.9% = 6.10%.

The dealer's cost is also known as the:

Invoice price.

Janie has a joint account with her mother with a balance of $565,000. 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 × $565,000 = $282,500 Uninsured portion of Janie's account = Janie's portion of joint account − FDIC coverage amount = $282,500 − $250,000 = $32,500

Given the following information, calculate the debt ratio percentage: Liabilities = $25,000 Liquid assets = $5,000 Monthly credit payments = $800 Monthly savings = $760 Net worth = $75,000 Take-home pay = $2,300 Gross income = $3,500 Monthly expenses = $2,050

Liabilities/Net worth = $25,000/$75,000 = 0.3333, or 33.33%.

A credit card is a type of:

Loan/borrowing.

Most customer complaints result from the all of the following except:

Long product lives.

Acme Home Lending offers home equity loans up to 80 percent of the home value for its customers. If Sally Johnson has a home valued at $200,000 and a current mortgage of $50,000, how much can she borrow in a home equity loan from Acme?

Maximum home equity loan = Home value × 80% − Mortgage balance = $200,000 × 80% − $50,000 = $110,000.

Shannon is working on her federal income tax form and wants to determine if she should itemize her deductions. She has identified several possible deductions. Which of the following is an acceptable deduction?

Medical and dental expenses that exceed 10% of AGI

Take-home pay is also called:

Net pay.

What is the annual opportunity cost of a checking account that requires a $280 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 = $280 × 0.025 = $7.00

Carrie bought a house five years ago for $130,000. At that time she borrowed $120,000 from her bank. The house is now worth $152,000. Her PMI will automatically be dropped when her mortgage balance drops to:

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 $130,000 × (1 − 0.22) = $101,400.

How long should you keep your most current will?

Permanently

An advantage of investing in a 401(k) plan is the:

Possibility of receiving an employer match on your contributions.

Wanda bought a certificate of deposit and automatically received a free bike. She purchased a(n):

Promotional CD.

Bob was married to Sandy, and they have a 12-year-old son. Sandy passed away last year. Bob needs to complete his federal income taxes for the year. What filing status could he use for 2 years after the death of his spouse?

Qualifying widow or widower

Most tenants sign a lease. Which of the following is part of a lease agreement?

The conditions under which the landlord may enter the apartment.

The primary benefit of a home equity loan is:

The deductibility of the loan interest on federal taxes.

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

The size of the home.

What is the unit price of a 20.8-ounce box of brown sugar that costs $10.4?

Total cost/Number of ounces = Cost/Ounce = $10.40/20.80 = $0.50 per ounce.

What is the unit price of a 32-ounce box of brown sugar that costs $3.20?

Total cost/Number of ounces = Cost/Ounce = $3.20/32 = $0.10 per ounce.

The unit price of a 64-ounce carton of orange juice that costs $3.20 is:

Total cost/Number of ounces = Cost/Ounce = $3.20/64 = $0.05 per ounce.

Using the following information, what is the cost to lease a car? (Assume there are no charges for damage at the end of the lease.) Security deposit $300 Monthly lease payment $300 per month for a five-year lease Opportunity cost of security deposit 300 × loan period (in years) × 2% interest End-of-lease charges 500

Total lease cost = Total monthly lease payment (monthly lease payment × 12 months × number of years in lease) + Opportunity cost (security deposit × number of years in lease × interest rate) + end-of-lease charges = ($300 × 12 months × 5 years) + ($300 × 5 years × 2%) + ($500) = $18,530.

Using the following information, what is the cost to buy a car? Down payment $3,000 Monthly loan payment $350 per month for a six-year loan Opportunity cost of down payment $3,000 × loan period (in years) × 2% interest Estimated value of vehicle at end of ownership period $4,000

Total vehicle cost = Down payment + Total monthly loan payment + Opportunity cost of down payment − Estimated value at end of ownership = $3,000 + ($350 × 12 months × 6 years) + ($3,000 × 6 years × 2%) − $4,000 = $3,000 + $25,200 + $360 − $4,000 = $24,560.

Anders went to Norway and went shopping. He had to sign his name once when he purchased this document and a second time at the store. Anders used a:

Traveler's check.

Using the Rule of 72, approximate the following amounts. a. If the value of land in an area is increasing 11 percent a year, how long will it take for property values to double? (Round your answer to 1 decimal place.) b. If you earn 6.5 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 3.25 percent, how long will it take for your savings to double? (Round your answer to 1 decimal place.)

a. 72/11 = 6.5 years b. 72/6.5 = 11.1 years c. 72/3.25 = 22.2 years

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.

if budgeted > actual = surplus if budgeted < actual = deficit

debt-payments ratio

month credit payments / take home pay

savings ratio

monthly savings / gross income

If I can invest a dollar today and earn interest on it, then it should be worth _________ in the future.

more

Assume Samantha Jones had the following itemized deductions: Donations to church and other charities$ 3,550 Medical and dental expenses exceeding 10 percent of adjusted gross income$ 2,110 Mortgage interest$ 3,850 State income tax$ 1,520 Should she use the itemized deduction or the standard deduction? The standard deduction for her tax situation is $12,400.

std deduction Itemized deductions = Donations + Medical expenses in excess of 10% of AGI + Mortgage interest + State income tax = $3,550 + $2,110 + $3,850 + $1,520 = $11,030 The standard deduction of $12,400 is more than itemizing deductions which totaled $11,030.

Hannah has liabilities totaling $23,100 (excluding her mortgage of $77,000). Her net worth is $35,000. What is her debt-to-equity ratio? (Round your answer to 2 decimals)

$23,100/$35,000 = 0.66.

The future value of $775 saved each year for 10 years at 8 percent.

11,227.43 775 * 14.487 = 11227.43 14.487 found on chart

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.

11,464 1000 * 11.464 chart

Brenda plans to reduce her spending by $100 a month. What would be the future value of this reduced spending over the next 9 years? (Assume an annual deposit to her savings account and an annual interest rate of 5 percent.) Use Exhibit 1-B.

13,232.40 Annual savings = Monthly spending reduction×Number of months per year = $100 × 12 = $1200 FV = PMT × FV annuity table factor = $1200 × 11.027 =13232.40

Ben Collins plans to buy a house for $150,000. If the real estate in his area is expected to increase in value 1 percent each year, what will its approximate value be five years from now? Use Exhibit 1-A.

157,650 150,000 * 1.051 = 157,650 1.051 found on chart

What would be the yearly earnings for a person with $3,600 in savings at an annual interest rate of 4.5 percent?

162 3600 * 0.045 = 162

In 2019, selected automobiles had an average cost of $16,000. The average cost of those same automobiles is now $18,880. What was the rate of increase for these automobiles between the two time periods?

18% (18,880-16,000) / 16,000 = 18%

Peter borrowed $275. He paid $30 interest and a service charge of $13. What is his finance charge?

Finance charge = Interest + Service charge = $30 + $13 = $43.

Paul Davis wants to deposit a lump sum of money today for a vacation that he plans to take to Asia after he graduates from graduate school. Which formula should he use to determine the amount of money he will have available for his vacation?

Future value of a single amount

Steve Wilson wants to deposit $150 per month into an account earning 4 percent for the next 3 years so he can purchase a used car at that time. What type of computation would he use to determine the amount he will have accumulated for his purchase?

Future value of an annuity

Given the following information, calculate the liquidity ratio: Liabilities = $25,000 Liquid assets = $5,000 Monthly credit payments = $800 Monthly savings = $760 Net worth = $75,000 Current liabilities = $2,600 Take-home pay = $2,300 Gross income = $3,500 Monthly expenses = $2,050

Liquid assets/Monthly expenses = $5,000/$2,050 = 2.44.

If 350,000 people each receive an average refund of $1,750, 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 = 350,000 × $1,750 × 0.03 = $18,375,000

The 'borrowing' component in a financial plan relates to:

Maintaining control over credit-buying habits.

Acme Home Lending offers home equity loans up to 80 percent of the home value for its customers. If Sally Johnson has a home valued at $190,000 and a current mortgage of $57,000, how much can she borrow in a home equity loan from Acme?

Maximum home equity loan = Home value × 80% − Mortgage balance = $190,000 × 80% − $57,000 = $95,000.

If $4,327 were withheld during the year and taxes owed were $4,124, would the person owe an additional amount or receive a refund? What is the amount?

Tax due (refund) = Total tax − Tax withheld = $4,124 − $4,327 = −$203

If a person in a 32 percent tax bracket makes a deposit of $5,400 to a tax-deferred retirement account, what amount would be saved on current taxes?

Tax savings = Annual retirement contribution × Tax rate = $5,400 × 0.32 = $1,728

With a 30 percent marginal tax rate, would a tax-free yield of 5.5 percent or a taxable yield of 8 percent give you a better return on your savings?

Tax-free yield: After-tax yield = 5.5% Taxable yield: After-tax yield = Taxable yield × (1 − Tax rate) = 0.080 × (1 − 0.30) = 0.0560, or 5.60% The better return is the option that has the higher after-tax yield.

At the end of the year, Xavier received a form from his employer that reported annual earnings and the amounts deducted for taxes. That form is called a:

W-2.

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)

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

Rachel Johnson has net monthly income of $6,000. She has a monthly auto loan payment of $825, a student loan payment of $350, and a credit card minimum payment of $150. What is her debt payments-to-income ratio?

($825 + $350 + $150)/$6,000 = 0.2208, or 22.08%.

In 2021, the U.S. federal tax tables included tax rates of:

10%, 12%, 22%, 24%, 32%, 35%, and 37%.

The future value of saving $3,400 a year for three years at an annual interest rate of 6 percent.

10,825.6 3400 * 3.184 chart

Would you prefer a fully taxable investment earning 10.9 percent or a tax-exempt investment earning 7.3 percent? (Assume a 24 percent tax rate.)

10.9 Fully taxable investment: After-tax earnings = Pretax earnings × (1 − Tax rate)= 0.109 × (1 − 0.24) = 0.08284, or 8.284% Tax-exempt investment: After-tax earnings = Pretax earnings = 7.30% You should prefer the investment with the higher after-tax earnings.

A family spends $62,000 a year for living expenses. If prices increase 1 percent a year for the next four years, what amount will the family need for their annual living expenses after four years? Only use the FV factors obtained in Exhibit 1-A to calculate this solution.

64,542 62,000 * 1.041 = 64,542 1.041 found on chart

The future value of $590 six years from now at 8 percent.

936.33 590 * 1.587 = 936.33 1.587 found on chart

The goal of purchasing a long-term care insurance policy would be most appropriate for:

An older single person with children.

An ATM with a service fee of $3 is used by a person 100 times in a year. What would be the future value in 5 years (use a 2 percent rate) of the annual amount paid in ATM fees? Use Exhibit 1-B.

Annual fee = Service fee per transaction × Number of transactions per year = $3 × 100 = $300 Future value = Annual fee × FV annuity factor = $300 × 5.204 = $1,561.20

A payday loan company charges 4.8 percent interest for a two-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 = 0.048 × (52/2) = 1.248, or 124.8%

What would be the annual percentage yield for a savings account that earned $78 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 = $78/$1,000 = 0.078, or 7.8%

current ratio

liquid assets / current liabilities

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$ 54,890 Standard deduction$ 24,800 Credit for child and dependent care expenses$ 660 Federal income tax withheld$ 7,136 Tax rate on taxable income = 15 percent

Taxable income would be $30,090 ($54,890 − $24,800) times the tax rate of 15 percent equals $4,513.50 less a tax credit of $660 gives a tax liability of $3,853.50. When compared to federal tax withheld ($7,136), the result is a refund of $3,282.50 ($7,136 − $3,853.50).

If a person has ATM fees each month of $18 for five years, what would be the total cost of those banking fees?

Total Cost = Monthly fee × 12 × Number of years = $18 × 12 × 5 = $1,080

Based on the following data, determine the amount of total assets, total liabilities, and net worth. Liquid assets $4,320 Investment assets $8,790 Current liabilities $2,220 Household assets$92,390 Long-term liabilities $80,730

Total assets = 105,500 (liquid + investment +household) Total liabilities = 82,950 (current + long term) Net worth = 22,500 (assets - liabilities)

Use the following items to determine the total assets, total liabilities, net worth, total cash inflows, and total cash outflows. Rent for the month$ 1,500 Monthly take-home salary$ 3,035 Spending for food$ 770 Cash in checking account$ 620 Savings account balance$ 2,060 Balance of educational loan$ 3,180 Current value of automobile$ 9,450 Telephone bill paid for month$ 150 Credit card balance$ 320 Loan payment$ 250 Auto insurance$ 400 Household possessions$ 5,100 Video equipment$ 2,775 Payment for electricity$ 175 Lunches/parking at work$ 265 Donations$ 330 Personal computer$ 2,050 Value of stock investment$ 1,285 Clothing purchase$ 195 Restaurant spending$ 215

Total assets = 23,340 (Cash in checking acc + Savings acc balance + Current value of auto + Household possessions + Video equipment + Personal computer + Value of stock investment) Total liabilities = 3500 (balance of educational loan + cc balance) Net worth = 19,840 (total assets - total liabilities) Cash inflows = 3035 (monthly take home salary) Cash outflows = 4250 (rent for the month + spending for food + auto insurance + lunches/parking at work + clothing purchase + telephone bill + loan payment + payment for electricity + donations + restaurant spending)

The unit price of a 48-ounce carton of orange juice that costs $9.60 is:

Total cost/Number of ounces = Cost/Ounce = $9.60/48 = $0.20 per ounce.

Using the following information, what is the cost to lease a car? (Assume there are no charges for damage at the end of the lease.) Security deposit $200 Monthly lease payment $200 per month for a five-year lease Opportunity cost of security deposit $200 × loan period (in years) × 2% interest End-of-lease charges $400

Total lease cost = Total monthly lease payment (monthly lease payment × 12 months × number of years in lease) + Opportunity cost (security deposit × number of years in lease × interest rate) + end-of-lease charges = ($200 × 12 months × 5 years) + ($200 × 5 years × 2%) + ($400) = $12,420

Using the following balance sheet items and amounts, calculate the total liquid assets and total current liabilities. Money market account$ 3,050 Medical bills$ 334 Mortgage$ 167,000 Checking account$ 870 Retirement account$ 91,000 Credit card balance$ 579

Total liquid assets = 3920 (money market + checking) Total current liabilities = 913 (medical + cc)

Reginald Sims deposits $4,500 each year in a tax-deferred retirement account. If he is in a 24 percent tax bracket, by what amount would his tax be reduced over a 20-year time period?

Total tax savings = (Annual retirement contribution × Tax rate) × Number of years = ($4,500 × 0.24) × 20 = $21,600

Using the following information, what is the cost to buy a car? Down payment $3,625 Monthly loan payment $425 per month for a seven-year loan Opportunity cost of down payment $3,625 × loan period (in years) × 3% interest Estimated value of vehicle at end of ownership period $4,625

Total vehicle cost = Down payment + Total monthly loan payment + Opportunity cost of down payment − Estimated value at end of ownership = $3,625 + ($425 × 12 months × 7 years) + ($3,625 × 7 years × 3%) − $4,625 = $3,625 + $35,700 + $761.25 − $4,625 = $35,461.25.

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 $750, earning 5 percent (compounded annually) after 10 years? (Round FV factor to 3 decimal places and final answer to the nearest whole dollar.) b. Brenda Young desires to have $11,000 eight years from now for her daughter's college fund. If she will earn 4 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 $2,600 a year for 25 years at 7 percent (compounded annually)? (Round discount factor to 3 decimal places and final answer to the nearest whole dollar.)

a. FV = $750 × 1.629 = $1,222 (Exhibit 1-A) b. PV = $11,000 × 0.731 = $8,041 (Exhibit 1-C) c. FV = $2,600 × 63.249 = $164,447 (Exhibit 1-B)

A bank that provides overdraft protection charges 7 percent for each $100 (or portion of $100) borrowed when an overdraft occurs. a. What amount of interest would the customer pay for a $140 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 two overdraft charges of $20 each during the year?

a. Interest = Number of $100 increments × $100 × Interest rate = 2 × $100 × 0.070 = $14 b. Savings = (2 × $20) − $14 = $26

Using the tax table, determine the amount of taxes for the following situations: a. A head of household with taxable income of $63,500. b. A single person with taxable income of $37,300. c. Married taxpayers filing jointly with taxable income of $73,700.

a. 8318 14100 * 0.10 = 1410 (53,700 - 14,100) * 0.12 = 4752 (63,500 - 53,700) * 0.22 = 2156 1410 + 4752 + 2156 = 8318 b. 4278.5 9875 * 0.10 = 987.5 (37,300 - 9,875) * 0.12 = 3291 987.5 + 3291 = 4278.5 c. 8449 19,750 * 0.10 = 1975 (73,700-19,750) * 0.12 = 6474 1975 + 6474 = 8449

A financial company that advertises on television will pay you $61,000 now for annual payments of $9,000 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 8 percent? (Round your PVA factor to 3 decimal places and final answer to the nearest whole dollar.) b. Should you accept this offer?

a.$9,000 × 6.710 = $60,390 b.Since you are being offered $61,000 for an annuity that is only worth $60,390 to you, you should accept this offer.

On December 30, you make a $3,500 charitable donation. a. If you are in the 10 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 four years at 6 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 = $3,500 × 0.10 = $350 b.FV of tax savings = Tax savings × FV factor = $350 × 1.262= $441.70

The loss of a job or encountering an illness results in ____________ risk.

income

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

inflow - outflow if positive = surplus if negative = deficit

debt ratio

liabilities / net worth