Personal Finance Chapter 11-14 HW
In 2019, Joshua gave $13,300 worth of Microsoft stock to his son. In 2020, the Microsoft shares were worth $22,000. What was the total amount removed from Joshua's estate in 2020?
$0, the gift was made in 2019.
Currently, 3M Company pays an annual dividend of $3.29. If the stock is selling for $70, what is the dividend yield? (Enter your answer as a percent rounded to 1 decimal place.)
Dividend yield = Annual dividend amount/Current price per share = $3.29/$70 = 0.047, or 4.7%
Jane and Bill Collins have total take-home pay of $9,750 a month. Their monthly expenses total $9,000. Calculate the minimum amount this couple needs to establish an emergency fund.
Minimum emergency fund = Monthly expenses × 3 months = $9,000 × 3 months = $27,000
Calculate approximately how much money an older (age 65-74) household with an annual income of $49,000 spends on health care each year. Use Exhibit 14-3.
Money spent on health care = Annual income × Average health care percent= $49,000 × 12.2%= $49,000 × 0.122= $5,978
Calculate approximately how much money an older (age 65-74) household with an annual income of $51,000 spends on housing each year. Use Exhibit 14-3.
Money spent on housing = Annual income × Average housing percent= $51,000 × 32.4%= $51,000 × 0.324= $16,524
Jan Throng invested $46,000 in the Invesco Charter mutual fund. The fund charges a commission (load) of 5.50 percent when shares are purchased. Calculate the amount of commission (load) Jan must pay.
Commission (load) = Dollar amount of investment × Load stated as a percentage= $46,000 × 5.50%= $46,000 × 0.055= $2,530
As Bart Brownlee approached retirement, he decided the time had come to invest some of his nest egg in a conservative fund. He chose the Franklin Utilities Fund. If he invests $55,000 and the fund charges a load of 4.50 percent when shares are purchased, what is the amount of commission (load) Bart must pay?
Commission (load) = Dollar amount of investment × Load stated as a percentage= $55,000 × 4.50%= $55,000 × 0.0450= $2,475
Jamie and Peter Dawson own 640 shares of Duke Energy common stock. Duke Energy's quarterly dividend is $0.80 per share. What is the amount of the dividend check the Dawson couple will receive for this quarter?
Quarterly dividend check amount = Quarterly dividend per share × Number of shares = $0.80 × 640 = $512
Mary Canfield purchased shares in the New Dimensions Global Growth Fund. This fund doesn't charge a front-end load, but it does charge a contingent deferred sales load of 4.50 percent for any withdrawals during the first year. If Mary withdraws $8,600 during the first year, how much is the contingent deferred sales load?
Contingent deferred sales load = Amount of withdrawal × Fee stated as a percentage= $8,600 × 4.50%= $8,600 × 0.045= $387
During one three-month period, Matt Roundtop's mutual fund grew by $6,900. If he withdraws 35 percent of the growth, how much will he receive?
Withdrawal amount = Investment growth × Percentage of growth withdrawn= $6,900 × 35%= $6,900 × 0.35= $2,415
In 2019, Joshua gave $12,700 worth of Microsoft stock to his son. In 2020, the Microsoft shares were worth $23,500. What was the gift tax in 2019? The gift tax exemption in 2019 was the same as in 2020.
In 2019, you could gift up to $15,000 to any one person without incurring any gift tax. Thus, the gift tax is $0.
In 2020, you gave a gift of $12,000 to a friend. What was the gift tax?
In 2020, you can gift up to $15,000 to any one person without incurring any gift tax. Thus, the gift tax is $0.
Barry and Mary have accumulated over $5.5 million during their 50 years of marriage. They have five children and two grandchildren. What is the total amount removed from Barry and Mary's estate in 2020 if they gift the maximum allowable amount to their children and grandchildren without incurring any gift taxes? (Enter your answer in dollars not in millions of dollars.)
In 2020, you can gift up to $15,000 to any one person without incurring any gift tax. Thus, the maximum this married couple can gift to their children and grandchildren without incurring any gift tax is: Maximum tax-free gifts to family = $15,000 × Number of family members × Number of spouses giving gifts= $15,000 × (5 + 2) × 2= $210,000
Barry and Mary have accumulated over $4.1 million during their 50 years of marriage. They have three children and four grandchildren. How much money can they gift to their children in 2020 without any gift tax liability? (Enter your answer in dollars not in millions of dollars.)
In 2020, you can gift up to $15,000 to any one person without incurring any gift tax. Thus, the maximum this married couple can gift to their children without incurring any gift tax is: Maximum tax-free gifts to children = $15,000 × Number of children × Number of spouses giving gifts= $15,000 × 3 × 2= $90,000
Barry and Mary have accumulated over $3.9 million during their 50 years of marriage. They have five children and six grandchildren. How much money can Barry and Mary gift to their grandchildren in 2020 without any gift tax liability? (Enter your answer in dollars not in millions of dollars.)
In 2020, you can gift up to $15,000 to any one person without incurring any gift tax. Thus, the maximum this married couple can gift to their grandchildren without incurring any gift tax is: Maximum tax-free gifts to grandchildren = $15,000 × Number of grandchildren × Number of spouses giving gifts= $15,000 × 6 × 2= $180,000
The value of Mike Jackson's shares in the New Frontiers Technology Fund is $53,300. The management fee for this particular fund is 0.70 percent of the total asset value. Calculate the management fee Mike must pay this year. (Round your answer to 2 decimal places.)
Management fee = Value of investment × Management fee as a percentage= $53,300 × 0.70%= $53,300 × 0.007= $373.10
Betty and James Holloway invested $74,000 in the Financial Vision Social Responsibility Fund. The management fee for this fund is 0.60 percent of the total asset value. Calculate the management fee the Holloways must pay.
Management fee = Value of investment × Management fee as a percentage= $74,000 × 0.60%= $74,000 × 0.006= $444
The Western Capital Growth mutual fund has: Total assets$ 807,000,000 Total liabilities$ 4,600,000 Total number of shares 40,000,000 What is the fund's net asset value (NAV) per share? (Round your answer to 2 decimal places.)
Net asset value = (Value of the fund's portfolio − Liabilities)/Number of shares outstanding= ($807,000,000 − $4,600,000)/40,000,000= $20.06 per share
Shelly's assets include money in checking and saving accounts, investments in stocks and mutual funds, and personal property such as furniture, appliances, an automobile, a coin collection, and jewelry. Shelly calculates that her total assets are $172,000. Her current unpaid bills, including an auto loan, credit card balances, and taxes, total $20,400. Calculate Shelly's net worth.
Net worth = Assets − Liabilities= $172,000 − $20,400= $151,600
In September, the board of directors of Chaparral Steel approved a stock split of 2-for-1. After the split, how many shares of Chaparral Steel stock will an investor have if he or she owned 500 shares before the split? (Do not round intermediate calculations.)
Post-split shares = Pre-split shares × Split ratio = 500 × (2/1) = 1,000
After researching Valero Energy common stock, Sandra Pearson is convinced the stock is overpriced. She contacts her account executive and arranges to sell short 600 shares of Valero Energy. At the time of the sale, a share of common stock had a value of $91. Three months later, Valero Energy is selling for $40 a share, and Sandra instructs her broker to cover her short transaction. Total commissions to buy and sell the stock were $110. What is her profit for this short transaction?
Profit = [(Selling price − Purchase price) × Number of shares] − Commissions = [($91 − $40) × 600] − $110 = $30,490
In 2019, Joshua gave $13,700 worth of Microsoft stock to his son. In 2020, the Microsoft shares were worth $24,000. What was the gift tax in 2020?
Since the gift was made in 2019, there was no gift tax in 2020, even though the value of the gift increased to $24,000.
Wanda Sotheby purchased 150 shares of Home Depot stock at $51 a share. One year later, she sold the stock for $60 a share. She paid her broker a commission of $40 when she purchased the stock and a commission of $47 when she sold it. During the 12 months she owned the stock, she received $130 in dividends. Calculate Wanda's total return on this investment. (A loss should be indicated by a minus sign.)
Total cost of purchase = (Price per share × Number of shares) + Commission = ($51 × 150) + $40 = $7,690 Total sale proceeds = (Price per share × Number of shares) − Commission = ($60 × 150) − $47 = $8,953 Total return = Dividends + Capital gain = $130 + ($8,953 − $7,690) = $1,393
Sarah and James Hernandez purchased 230 shares of Macy's stock at $40 a share. One year later, they sold the stock for $80.00 a share. They paid a broker a commission of $11 when they purchased the stock and a commission of $15 when they sold the stock. During the 12-month period the couple owned the stock, Macy's paid dividends that totaled $1.78 a share. Calculate the Hernandezes' total return for this investment. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Total dividend income = Dividend per share × Number of shares = $1.78 × 230 = $409.40 Total cost of purchase = (Price per share × Number of shares) + Commission = ($40 × 230) + $11 = $9,211 Total sale proceeds = (Price per share × Number of shares) − Commission = ($80.00 × 230) − $15 = $18,385 Total return = Dividends + Capital gain = $409.40 + ($18,385 − $9,211) = $9,583.40
During the four quarters for 2020, the Browns received two quarterly dividend payments of $0.33, one quarterly payment of $0.58, and one quarterly payment of $0.61. If they owned 440 shares of stock, what was their total dividend income for 2020? (Do not round intermediate calculations.)
Total dividend income = Total quarterly dividends per share × Number of shares = ($0.33 + $0.33 + $0.58 + $0.61) × 440 = $814
Three years ago, James Matheson bought 350 shares of a mutual fund for $25 a share. During the three-year period, he received total income dividends of $0.60 per share. He also received total capital gain distributions of $0.70 per share during the three-year period. At the end of three years, he sold his shares for $28 a share. What was his total return for this investment?
Total return = Income dividends + Capital gain distributions + Change in share price when sold= (350 × $0.60) + (350 × $0.70) + [350 × ($28 − $25)]= $1,505
General Motors has a beta of 1.45. If the overall stock market increases by 4 percent, based on this information, how much should investors assume that General Motors will increase? (Enter your answer as a percent rounded to 2 decimal places.)
Volatility for a stock = Increase in overall market × Beta for General Motors = 4% × 1.45 = 5.80%
Over a four-year period, LaKeisha Thompson purchased shares in the Oakmark Investor Class Fund. Using dollar cost averaging, calculate the number of shares before completing this problem. (Round your answers to the nearest whole number.) a. At the end of four years, what is the total amount invested? b. At the end of four years, what is the total number of shares purchased? (Round your intermediate calculations and final answer to the nearest whole number.) c. At the end of four years, what is the average cost for each share? (Round your intermediate calculations to the nearest whole number. Round final answer to 2 decimal places.)
a. Total investment = Annual investment × Number of years= $1,500 × 4= $6,000 b. 38+71+44+36 = 189 c. Average cost per share = Total investment/Total shares= $6,000/189= $31.75
Jason Mathews purchased 450 shares of the Hodge & Mattox Energy Fund. Each share cost $14.20. Fifteen months later, he decided to sell his shares when the share value reached $17.00. a. What was the amount of his total initial investment? b. What was the total amount Jason received when he sold his shares in the Hodge & Mattox fund? c. How much profit did he make on his investment?
a. Total investment = Price per share × Number of shares purchased= $14.20 × 450= $6,390 b. Sale proceeds = Price per share × Number of shares sold= $17.00 × 450= $7,650 c. Profit = Sale proceeds − Total investment= $7,650 − $6,390= $1,260
Assume that one year ago, you bought 320 shares of a mutual fund for $35 a share, you received a capital gain distribution of $0.60 per share during the past 12 months, and the market value of the fund is now $39 a share. a. Calculate the total return for your $11,200 investment. b. Calculate the percentage of total return for your $11,200 investment. (Enter your answer as a percent rounded to 1 decimal place.)
a. Total return = Income dividends + Capital gain distributions + Change in share price when sold= $0 + (320 × $0.60) + [320 × ($39 − $35)]= $1,472 b. Percent of total return = Dollar amount of total return/Original cost of your investment= $1,472/$11,200= 0.131, or 13.1%
Analysts who follow JPMorgan Chase, one of the nation's largest providers of financial services, estimate that the corporation's earnings per share will increase from $4.63 in the current year to $5.06 next year. a. What is the amount of the increase? (Round your answer to 2 decimal places.) b. What effect, if any, should this increase have on the value of the corporation's stock?
a. Amount of increase = Next year's earnings − Current year's earnings = $5.06 - $4.63 = $0.43 b. From an investor's standpoint, a projected increase in earnings from $4.63 to $5.06 per share is a good sign. Since a stock's market value is often tied to a corporation's ability to earn money, the stock's market value should increase during the next 12 months.
As part of his 401(k) retirement plan at work, Ken Lowery invests 5.50 percent of his salary each month in the Capital Investments Lifecycle Fund. At the end of this year, Ken's 401(k) account has a dollar value of $211,200. If the fund charges a 12b-1 fee of 0.60 percent, what is the amount of the fee? (Round your answer to 2 decimal places.)
12b-1 fee = Value of investment × Fee as a percentage= $211,200 × 0.60%= $211,200 × 0.0060= $1,267.20
Five years ago, you purchased fourteen corporate bonds that each pay 4.40 percent annual interest. Each bond has a face value of $1,000. How much interest do you earn on the fourteen bonds each year?
Amount of annual interest = Face value × Interest rate = $1,000 × 0.044 = $44 Total interest amount = Interest for each bond × Number of bonds = $44 × 14 = $616
The Yamaha Aggressive Growth Fund has an expense ratio of 1.81 percent. If you invest $60,000 in this fund, what is the dollar amount of fees that you would pay this year? (Round your answer to 2 decimal places.)
Annual fee = Value of investment × Expense ratio as a percentage= $60,000 × 1.81%= $60,000 × 0.0181= $1,086.00
Ted Riley owns a Lexus worth $43,500. He owns a home worth $370,000. He has a checking account with $600 in it and a savings account with $3,500 in it. He has a mutual fund worth $117,000. His personal assets are worth $97,000. He still owes $22,100 on his car and $222,000 on his home, and he has a balance on his credit card of $3,200. What is Ted's net worth?
Assets: Car 43,500 Home 370,000 Checking account 600 Savings 3,500 Mutual fund 117,000 Personal Assets 97,000 Liabilities: Car 22,100 Home 222,000 Credit card, 3,200 Net worth = Assets − Liabilities= $631,600 − $247,300= $384,300
Casper Energy Exploration reports that the corporation's assets are valued at $200,000,000, its liabilities are $74,000,000, and it has issued 7,000,000 shares of stock. What is the book value for a share of Casper stock? (Round your answer to 2 decimal places.)
Book value per share =(Assets - Liabilities)/Number of shares outstanding = ($200,000,000 − $74,000,000)/7,000,000 = $18.00
Jim Johansen noticed that a corporation he is considering investing in is about to pay a quarterly dividend. The record date is Thursday, June 4, 2020. In order for Jim to receive this quarterly dividend, what is the last date that he could purchase stock in this corporation and receive this quarter's dividend payment?
The stock went ex-dividend on Wednesday, June 3 - one business day before the June 4 date. Investors who purchase a stock on the ex-dividend date or after are not entitled to this quarterly dividend.
Using Exhibit 1-B, complete the following table. (Round FVA factors to 3 decimal places and final answers to the nearest whole dollar.)
Total Amount of Investment = Annual Deposit × Number of years Total Amount of Earnings = Investment Value at the End of Time Period − Total Amount of Investment
Three years ago, you purchased a corporate bond that pays 4.8 percent. The purchase price was $1,000. What is the annual dollar amount of interest that you receive from your bond investment?
Amount of annual interest = Face value × Interest rate = $1,000 × 0.048 = $48
Five years ago, you purchased a $1,000 par value corporate bond with an interest rate of 7.5 percent. Today, comparable bonds are paying 9.2 percent. What is the approximate dollar price for which you could sell your bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Amount of annual interest = Face value × Interest rate = $1,000 × 0.075 = $75 Approximate market value = Dollar amount of annual interest/Comparable interest rate = $75/0.092 = $815.22
Assume you own a corporate bond that has a face value of $1,000 and pays 7.6 percent. What is the current yield if the bond is currently selling for $760?
Amount of annual interest = Face value × Interest rate = $1,000 × 0.076 = $76 Current yield = Annual interest amount/Current price = $76/$760 = 0.10, or 10%
Determine the current yield on a corporate bond investment that has a face value of $1,000, pays 8 percent, and has a current price of $940. (Enter your answer as a percent rounded to 2 decimal places.)
Amount of annual interest = Face value × Interest rate = $1,000 × 0.08 = $80 Current yield = Annual interest amount/Current price = $80/$940 = 0.0851, or 8.51%
In 2009, you purchased a $1,000 par value corporate bond with an interest rate of 9.5 percent. Today, comparable bonds are paying 5.25 percent. What is the approximate dollar price for which you could sell your bond? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Amount of annual interest = Face value × Interest rate = $1,000 × 0.095 = $95.00 Approximate market value = Dollar amount of annual interest/Comparable interest rate = $95.00/0.0525 = $1,809.52
When Jill Thompson received a large settlement from an automobile accident, she chose to invest $118,500 in the Vanguard 500 Index Fund. This fund has an expense ratio of 0.20 percent. What is the amount of the fees that Jill will pay this year? (Round your answer to 2 decimal places.)
Annual fee = Value of investment × Expense ratio as a percentage= $118,500 × 0.20%= $118,500 × 0.0020= $237.00
Assume that you purchased a $1,000 convertible corporate bond. Also assume the bond can be converted to 25 shares of the firm's stock. What is the dollar value that the stock must reach before investors would consider converting to common stock? (Round your answer to the nearest whole dollar amount.)
Conversion price = Face value/Conversion ratio = $1,000/25 = $40
Assume you are in the 33 percent tax bracket and purchase a municipal bond with a yield of 5.75 percent. Use the formula presented in this chapter to calculate the taxable equivalent yield for this investment. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Taxable equivalent yield = Tax-exempt yield/(1 − Your tax rate) = 0.0575/(1 - 0.33) = 0.0858, or 8.58%
Assume you are in the 35 percent tax bracket and purchase a municipal bond with a yield of 7.25 percent. Use the formula presented in this chapter to calculate the taxable equivalent yield for this investment. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
Taxable equivalent yield = Tax-exempt yield/(1 − Your tax rate) = 0.0725/(1 - 0.35) = 0.1115, or 11.15%
Michelle Townsend owns stock in National Computers. Based on information in its annual report, National Computers reported after-tax earnings of $4,000,000 and has issued 2,000,000 shares of common stock. The stock is currently selling for $35 a share. a. Calculate the earnings per share for National Computers. (Round your answer to 2 decimal places.) b. Calculate the price-earnings (PE) ratio for National Computers. (Use the rounded earnings per share from part a. Round your answer to 2 decimal places.)
a. Earnings per share = After-tax earnings/Number of shares outstanding = $4,000,000/2,000,000 = $2.00 b. Price-earnings (PE) ratio = Price per share/Earnings per share = $35/$2.00 = 17.50
You have $25,000 in your retirement fund that is earning 5.5 percent per year, compounded quarterly. a. How many dollars in withdrawals per month would reduce this nest egg to zero in 15 years? Use Exhibit 14-7. b. How many dollars per month can you withdraw for as long as you live and still leave this nest egg intact? Use Exhibit 14-7.
a. Given a $25,000 account value and an interest rate of 5.5 percent, compounded quarterly, a monthly withdrawal of $202 will reduce the account value to zero in 15 years. b. Given a $25,000 account value and an interest rate of 5.5 percent, compounded quarterly, you can withdraw $115 a month indefinitely while maintaining the $25,000 account value.
Bob Orleans invested $10,000 and borrowed $10,000 to purchase shares in Verizon Communications. At the time of his investment, Verizon was selling for $50 a share. a. If Bob paid a commission of $50, how many shares could he buy if he used only his own money and did not use margin? b. If Bob paid a commission of $100, how many shares could he buy if he used his $10,000 and borrowed $10,000 on margin to buy Verizon stock? c. Assume Bob did use margin to buy his Verizon stock. Also, assume he paid another $100 to sell his stock and sold the stock for $57 a share. How much profit did he make on his Verizon stock investment?
a. Number of shares = Funds available for investment/Price per share = ($10,000 − $50)/$50 = 199 shares b. Number of shares = Funds available for investment/Price per share = ($10,000 + $10,000 − $100)/$50 = 398 shares c. Net sale proceeds = (Sales price × Number of shares) − Sales commission = ($57 × 398) − $100 = $22,586 Profit = Net sale proceeds − Total investment = $22,586 − $20,000 = $2,686
For four years, Marty Campbell invested $8,000 each year in Harley-Davidson. The stock was selling for $76 in 2017, $78 in 2018, $58 in 2019, and $80 in 2020. a. What is Marty's total investment in Harley-Davidson? b. After four years, how many shares does Marty own? (Round your intermediate calculations and final answer to nearest whole number.) c. What is the average cost per share of Marty's investment? (Use the rounded number of shares computed in part b. Round your answer to 2 decimal places.)
a. Total investment = Annual investment × Number of years = $8,000 × 4 = $32,000 b. 105+103+138+100 = 446 c. Average cost per share = Total investment/Total shares = $32,000/446 = $71.75
Ruby is 25 and has a good job at a biotechnology company. She currently has $10,400 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. Ruby 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). Using Exhibit 1-A, Exhibit 1-B, Exhibit 1-C, Exhibit 1-D, answer the following questions. a. How much will Ruby's IRA be worth when she needs to start withdrawing money from it when she retires? (Round discount factor to 3 decimal places and final answer to the nearest whole dollar.) b. How much money will she have to accumulate in her company's 401(k) plan over the next 40 years in order to reach her retirement income goal? (Round discount factor to 3 decimal places and final answer to the nearest whole dollar.)
a. Future value of IRA = Present value of IRA × Future value factor= $10,400 × 21.725= $225,940 b. Required future value of 401(k) = Total retirement savings goal − Future value of IRA= $875,000 − $225,940= $649,060