Financial

This is the book link

http://www.monroecollege.edu/AcademicResources/ebooks/9781111821999%20Chapt%201-3.pdf

Chapter one Learning goals excises
1. How can using personal financial planning tools help you improve your financial situation?
Describe changes you can make in at least three areas.
2. Use Worksheet 1.1. Fill out Worksheet 1.1, “Summary of Personal Financial Goals,” with
goals reflecting your current situation and your expected life situation in 5 and 10 years.
Discuss the reasons for the changes in your goals and how you’ll need to adapt your financial plans as a result.
3. Recommend three financial goals and related activities for someone in each of the following circumstances:
a. Senior in college
b. 32-year-old computer programmer who plans to earn an MBA degree
c. Couple in their 30s with two children, ages 5 and 9
d. Divorced 42-year-old man with a 15-year-old child and a 80-year-old father who is ill
4. Explain the life cycle of financial plans and their role in achieving your financial goals.
5. Summarize current and projected trends in the economy with regard to GDP growth,
unemployment, and inflation. How should you use this information to make personal
financial and career planning decisions?
6. Evaluate the impact of age, education, and geographic location on personal income.
7. Assume that you graduated from college with a major in finance and took a job with a
large bank. After 3 years, you are laid off when the company downsizes. Describe the
steps you’d take to “repackage” yourself for another field.

Chapter 2

1. Tim Roberts is preparing his balance sheet and income and expense statement for the
year ending June 30, 2012. He is having difficulty classifying six items and asks for your
help. Which, if any, of the following transactions are assets, liabilities, income, or expense
items?
a. Tim rents a house for $925 a month.
b. On June 21, 2012, Tim bought diamond earrings for his wife and charged them using his
Visa card. The earrings cost $700, but he hasn’t yet received the bill.
c. Tim borrowed $2,500 from his parents last fall, but so far he has made no payments
to them.
d. Tim makes monthly payments of $120 on an installment loan; about half of it is interest,
and the balance is repayment of principal. He has 20 payments left, totaling $2,400.
e. Tim paid $2,900 in taxes during the year and is due a tax refund of $450, which he hasn’t
yet received.
f. Tim invested $1,600 in some common stock.
2. Nancy and Bill Thompson are preparing their 2013 cash budget. Help the Thompsons
reconcile the following differences, giving reasons to support your answers.
a. Their only source of income is Bill’s salary, which amounts to $5,000 a month before
taxes. Nancy wants to show the $5,000 as their monthly income, whereas Bill argues that
his take-home pay of $3,917 is the correct value to show.
b. Nancy wants to make a provision for fun money, an idea that Bill cannot understand. He
asks, “Why do we need fun money when everything is provided for in the budget?”
3. Use future or present value techniques to solve the following problems.
a. If you inherited $25,000 today and invested all of it in a security that paid a 7% rate of
return, how much would you have in 25 years?
b. If the average new home costs $210,000 today, how much will it cost in 10 years if the
price increases by 5% each year?
c. You think that in 15 years it will cost $214,000 to provide your child with a 4-year college
education. Will you have enough if you take $75,000 today and invest it for the next 15
years at 5%?
d. If you can earn 5%, how much will you have to save each year if you want to retire in 35
years with $1 million?
4. Simon Fellows wishes to have $400,000 in a retirement fund 20 years from now. He can
create the retirement fund by making a single lump-sum deposit today.
a. If upon retirement in 20 years Simon plans to invest $400,000 in a fund that earns 5%,
what is the maximum annual withdrawal he can make over the following 15 years?
b. How much would Simon need to have on deposit at retirement in order to withdraw
$35,000 annually over the 15 years if the retirement fund earns 8%?
c. To achieve his annual withdrawal goal of $35,000 calculated in part b, how much more
than the amount calculate.

1. What is the future value of $250 received today if it is invested at 6.5% compounded annually for eight years?

a. $251.30
b. $316.89
c. $412.28
d. $413.75
e. $417.04

2. How much would you have to invest today at 12% compounded semiannually to have $25,000 to buy a trailer house in 4 years?

a. $13,492.13
b. $13,678.79
c. $14,789.36
d. $15,685.31
e. $16,665.73
3. You will receive a $100,000 inheritance in 8 years. That inheritance is invested today at
10% compounded semiannually. What is the present value of your inheritance?

a. $ 41,397.93
b. $ 45,811.15
c. $ 46,650.74
d. $ 67,683.94
e. $100,000.00

4. Your want to start saving for your son’s college education. You will need $65,000 in 18 years. You can earn 10% compounded annually. How much do you need to invest today?

a. $ 2,828.18
b. $ 9,763.07
c. $11,690.82
d. $13,258.17
e. $30,322.98

5. What is the total present value of $50 received in one year, $200 received in two years, $700 received in four years, and $800 received in six years if the discount rate is 8.25%?

a. $1127.19
b. $1324.81
c. $1219.49
d. $1223.84
e. $1351.32

6. You need $2,000 to buy a new stereo for your car. If you have $500 to invest at 14% compounded annually, how long will you have to wait to buy the stereo?

a. 6.58 years
b. 8.42 years
c. 10.58 years
d. 10.75 years
e. 12.27 years

7. Given the following cash flows, what is the present value if the discount rate is 8 %?

Year Cash Flow
1 $ 200
2 $ 350
3 $ 800
4 $1125
5 $1275
6 $1350

a. $3115.07
b. $3232.89
c. $3665.70
d. $3058.96
e. $4122.62
8. What is the present value of the following set of cash flows? Assume a discount rate of
8 % .

Year Cash Flow
0 -$1000
1 $1000
2 $1400
3 -$ 200
4 -$ 800

a. $225.64
b. $278.41
c. $335.67
d. $379.41
e. $407.21
9. What is the future value of the following set of cash flows 6 years from now? Assume an interest rate of 5.5 % .

Year Cash Flow
0 -$ 800 4 $700
1 $ 100 5 $950
2 $ 300 6 $1100
3 $ 500

a. $2079.83
b. $2867.76
c. $2942.12
d. $3387.65
e. $4190.22
10. You need to borrow $18,000 to buy a truck. The current loan rate is 11.9% compounded monthly and you want to pay the loan off in equal monthly payments over 5 years. What is your monthly payment?

a. $363.39
b. $394.04
c. $399.49
d. $407.86
e. $412.22
11. Your mortgage on your house payment is $663.81. It is a 30 year mortgage at 9.0% compounded monthly. How much did you borrow?

a. $75,000
b. $77,500
c. $80,000
d. $82,500
e. $85,000
12. You have just won the lottery and will receive $1,500 per year forever. What is the present value of this infinite stream of cash flows given an 8% discount rate?

a. $ 3,721.60
b. $13,419.54
c. $18,750.00
d. $21,428.57
e. $30,000.00
13. You will receive $1,500 per year forever. The present value of this stream of cash flows is $12,500. What is the discount rate?

a. 3.3%
b. 9.3%
c. 12.0%
d. 13.6%
e. 30.0%

14. What is the future value in 15 years of $1,000 payments received at the beginning of each year for the next 15 years? Assume an interest rate of 5.25%.

a. $21,989.07
b. $23,143.49
c. $23,729.84
d. $24,495.48
e. $39,782.15

15. You are going to receive $100 three years from today. If the appropriate discount rate is 10% compounded semiannually, what is the value of the $100 today?

a. $62.06
b. $69.36
c. $74.62
d. $78.40
e. $85.43
16. You are going to receive $1000 at the end of each year for three years. If the annual discount rate is 8 %, what is the present value of this income stream?

a. $ 793.83
b. $2,577.10
c. $2,602.29
d. $2,713.75
e. $2,775.67
17. Gramps puts $35,000 into a bank account earning 5.5% compounded quarterly. How much will you have in the account after 5 years if you don’t make Gramps mad enough to take the money back before then?

a. $44,221.13
b. $44,697.79
c. $45,743.60
d. $45,992.33
e. $47,837.61
18. At the end of each year for the next ten years you will receive cash flows of $50. If the appropriate discount rate is 8.7%, what is the value of the annuity?

a. $259.82
b. $299.02
c. $308.99
d. $319.02
e. $325.16
19. You are considering investing $750 in a 10 year annuity. The rate of return you feel you should earn is 8.5 % . What annual cash flow from the annuity will provide the required return?

a. $ 70.77
b. $102.96
c. $107.92
d. $114.31
e. $129.27
20. Four years from now you will receive the first of seven annual $100 payments. The current interest rate is 7%, but by t=3 the rate will have risen to 8%. What is the present value of this cash stream?

a. $ 418.07
b. $ 425.00
c. $ 485.36
d. $ 520.64
e. $ 569.33