Retirement savings plan

Open the Personal Financial Plan which should also be saved. Turn to the Chapter 19 tab.  Complete the chart based on a conservative amount you plan to save each year once you are settled in your career. You are free to try out different contribution levels until you find one you are comfortable with. Once finished go through and reflect on each questions and when you will be able to retire. use the chapters that are complete in order to complete chapter 19 

Personal Finance, Seventh Edition by Jeff Madura BUILDING YOUR OWN FINANCIAL PLAN WORKBOOK INDEX Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Chapter 17 Chapter 18 Chapter 19 Chapter 20 Chapter 21 Your Documents Your Decisions THE SAMPSONS—A CONTINUING CASE WORKBOOK INDEX Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Chapter 17 Chapter 18 Chapter 19 Chapter 20 Chapter 21 BRAD BROOKS—A CONTINUING CASE WORKBOOK INDEX Part 1 Part 2 Part 3 Part 4 Part 5 Part 6 Copyright 2020 by Pearson Education Personal Finance by Jeff Madura Personal Finance by Jeff Madura Personal Finance by Jeff Madura Personal Finance by Jeff Madura Name: Nooshin Bidel Date: Chapter 1 Building Your Own Financial Plan 1. Accessing The Financial Plan Spreadsheets Access the Excel spreadsheets that help you complete your financial planning tasks at www.pearson.com/mylab/fina download and store these files so that you have easy access to all of your answers for all chapters. The spreadshee calculations that you need to complete your financial planning tasks once you provide the proper input. The informati financial planning spreadsheets corresponds to the information shown on the in-text worksheets, and includes intera charts to complement some tables. Your instructor may offer specific instructions on how to complete your financial p submit your plan for review and/or grading. 2. Planning Your Future Occupation a. What is your expected occupation upon completion of your degree? Upon completion of my degree, I expect to work as a software engineer specializing in artificial intelligence and mach b. What is the entry-level annual salary for your expected occupation? (If you need to access info about occupations, go to www.bls.com. If you need an estimate of the entry-level salary, g browser and type the occupation you chose along with the search term “entry salary.” You may be able to obtain a m estimate if you include your city or state in your search.) The entry level annual salary for software engineer in my state is at average of $140,000 depending on the company c. Review your expected accumulated income over time. Is it sufficient for you to achieve your financial goals over time? If not, reconsider your future occupation, and redo your answers to questions 2a and 2b. My projected income over time is enough to meet my financial goals. The potential career growth in tech assures me 3. Planning Additional Education a. If you are completing your associate degree, what undergraduate major might you pursue if you continue your edu If pursuing further education, I might major in computer science after my associate degree to sharpen programming b. If you are completing your undergraduate degree, what master’s degree might you pursue if you continue your education? Upon completing my undergragduate, I might pursue masters in articificial intelligence to specialize further. Personal Finance by Jeff Madura c. What university would you most likely attend? I would like to attend stanford university for its reputation in Data science and AI programs d. What is the annual tuition at that university? (This information is normally easy to access if you do a search on the Internet using the name of the university, along with “tuition.”) Annual tuition at stanford university is at $65,127 exlusive of additional expenses such as books, accomodation and Personal Finance by Jeff Madura 13/3/2024 lan t www.pearson.com/mylab/finance. You can r all chapters. The spreadsheets will perform all the the proper input. The information on the online worksheets, and includes interactive graphs and pie how to complete your financial plan and when to n artificial intelligence and machine learning. mate of the entry-level salary, go to your Web You may be able to obtain a more accurate salary 00 depending on the company. eve your financial uestions 2a and 2b. reer growth in tech assures me of financial stability pursue if you continue your education? gree to sharpen programming skills pursue if you to specialize further. Personal Finance by Jeff Madura ams ccess if you do h as books, accomodation and fees. Personal Finance by Jeff Madura Name: Nooshin Bidel Chapter 2 Building Your Own Financial Plan 1. Prepare your personal cash flow statement. a. Input your monthly cash inflows and outflows electronically in the Personal Cash Flow Statement template. Personal Cash Flow Statement Cash Inflows Disposable (after-tax) income Interest on deposits Dividend payments Other Total Cash Inflows Cash Outflows Rent/Mortgage Internet/Cable Electricity and water Smartphone Groceries Health care insurance and expenses Clothing Stationery Expenses Recreation Other Total Cash Outflows Net Cash Flows Cash Outflow Rent/Mortgage Electricity and water Personal Finance by Jeff Madura Internet/Cable Smartphone As you fill in the table above, the pie chart will be created automatically. Mouse over each slice of pie for additional information (legend, value, and percentage) b. Assess your monthly net cash flow. Are you satisfied with it for now given your existing work and/or school schedule? If not, how can you improve the monthly net cash flow in the future? With a monthly net cash flow of $925, I’m reasonably satisfied, considering my current work or school schedule. However, future, I could explore additional income sources like freelancing, investing in income-generating assets, or reducing discre Adjusting my budget to prioritize savings could also bolster financial security. c. Are there any monthly cash outflow categories (such as rent, etc.) that you hope to reduce in the near future in order to improve your monthly net cash flow? Yes, there are some monthly cash outflow categories that I would like to reduce in the near future to improve my monthly n monthly spending. Furthermore, I am exploring ways to reduce utility bills and look for cost effective alternatives for interne 2. Prepare your personal balance sheet. a. Input your assets and liabilities in the following personal balance sheet. Personal Balance Sheet Assets Liquid Assets Cash Checking account Savings account Other liquid assets Total liquid assets Household Assets Appliances Jewelery Furniture Other household assets Total household assets Investment Assets Stocks Bonds Mutual Funds Other investments Total investment assets Real Estate Vacation home Other Total real estate Total Assets Personal Finance by Jeff Madura Liabilities and Net Worth Current Liabilities Short-term Loans Credit card balance Other current liabilities Total current liabilities Long-Term Liabilities Student Loan Other long-term liabilities Total long-term liabilities Total Liabilities Net Worth b. Assess your personal balance sheet. Are you satisfied with it for now given your existing work and/or school schedule? If not, how can you improve it in the near future? Based on my personal balance sheet, I have a networth of $61,850. While I am satisfied with it to some extent, I believe th instance,I should focus on reducing my credit card balance and long term liabilities ($15,000) to improve my net woth. Furt investment assets to aid in improving long term fiancial stability. c. Review your debt situation. If you have debt, is your present monthly net cash flow sufficient to pay off part of your debt? debt? Ater reviewing my debt situation from the balance sheet, I have a credit balance of $750 and long term liabilities totalling $1 monthly net cahsflow,I can allocate a small portion towards debt repayment. Beginning now, I aim to slowly pay off my deb reduce the interest expense and improve overall financial health. Personal Finance by Jeff Madura Date: Chapter 2 Financial Plan ow Statement template. w Statement This Month $3,000 50 100 25 $3,175 1,000 100 150 50 300 200 100 150 200 2,250 $925 Personal Finance by Jeff Madura t work or school schedule. However, there’s always room for improvement. To enhance my net cash flow in the generating assets, or reducing discretionary expenses such as recreation and other non-essential items. near future to improve my monthly net cashflow. These include recreation, grocceries and other discretionary cost effective alternatives for internet or cable. ce Sheet $200.00 $1,000.00 $5,000.00 $50.00 $6,250.00 $50,000.00 $200.00 $5,000.00 $2,000.00 $57,200.00 $10,000.00 $3,000.00 $800.00 $500.00 $14,300.00 $0.00 $77,750.00 Personal Finance by Jeff Madura $750.00 $150.00 $900.00 $15,000.00 $15,000.00 $15,900.00 $61,850.00 ed with it to some extent, I believe there is room for improvement. For 15,000) to improve my net woth. Furthermore, I would increase my sufficient to pay off part of your debt? If not, when do you hope to start paying off your 50 and long term liabilities totalling $15000. Therefore, with positive g now, I aim to slowly pay off my debts, prioritizing high interest debts to Personal Finance by Jeff Madura Personal Finance by Jeff Madura Personal Finance by Jeff Madura Personal Finance by Jeff Madura Name: Date: Chapter 3 Building Your Own Financial Plan 1. Using Future Value Concepts to Predict Your Future Income a. Recall from Chapter 1 that you were asked to select the occupation that you hope to pursue after obtaining your degree, and to determine the likely entrylevel salary that you could earn from that occupation. Insert your expected starting salary here: $0 Just as the future value interest factor (FVIF) was used in this chapter to show how a deposit can grow over time, it can be used to show how an annual salary can grow over time based on the percentage increase each year, as determined by the raise given to you each year. In reality, your raise will likely vary from one year to the next, but this exercise will assume that your annual raise is consistent in order to illustrate how you can predict your future income level over various periods of time. The following template estimates how your future salary will grow over time, based on different assumptions regarding your annual percentage raise (1% in the second column, 5% in the third column, and 10% in the fourth column). Predict Your Future Salary Your Annual Starting Salary When You Begin Your Occupation Column 2 $0 Column 3 $0 1% 5% Expected Annual % Raise Each Year Column 4 $0 10% Estimated Annual Salary Five Years After You Begin Your Occupation $ – $ – $ – Estimated Annual Salary Ten Years After You Begin Your Occupation $ – $ – $ – Estimated Annual Salary Fifteen Years After You Begin Your Occupation $ – $ – $ – Estimated Annual Salary Twenty Years After You Begin Your Occupation $ – $ – $ – Estimated Annual Salary Twenty-Five Years After You Begin Your Occupation $ – $ – $ – b. How much larger will your expected annual salary be in five years (third row) if your annual percentage raise is 10% (fourth column) versus 1% (second column)? This table illustrates the power of compounding. The size of your raise can have a major impact on your future salary. Personal Finance by Jeff Madura c. In the fifth column, the expected annual percentage raise (second row) is blank, allowing you to insert your own guess of the specific annual raise you will earn on average. The online version of the template will display estimates of your future annual salary once you insert your expected annual percentage raise in the second row of the fifth column. Based on the expected annual percentage raise that you input in the second row of the fifth column, what is your expected annual salary ten years after you begin your occupation? [See the fourth row of column five to obtain your answer.] d. Based on the expected annual raise that you input in the second row of the fifth column, what is your expected annual salary twenty-five years after you begin your occupation? [See the seventh row of column five to obtain your answer.] 2. Determining How Much You Need to Save Per Year to Become a Millionaire. Consider how much money you need to save each year in order to become a millionaire. If you save the same amount every year, that amount is an annuity. So your goal is to solve for the amount of money that you need to save each year in order to accumulate $1,000,000. The online version of the following template will perform the calculations once you provide input on the future value that you are trying to achieve ($1,000,000), the number of years in which you will save money (insert 30 for now), and the interest rate that you can earn on your savings (insert 3% for now). Estimate Savings Per Year That Would Make You a Millionaire Future Amount of Savings You Want to Accumulate $1,000,000 Number of Years Interest Rate on Your Savings Amount of Savings Per Year #VALUE! Note: The savings will appear as a negative number. a. What is the amount of money you need to save per year over thirty years in order to achieve $1,000,000? b. Your answer above was based on an assumed interest rate of 3%. But if you could invest the money and earn a higher return, you would not need to save as much every year in order to accumulate $1,000,000. Insert 6% for the Interest Rate on Your Savings. What is the amount of money you need to save per year over thirty years in order to achieve $1,000,000? c. Perhaps you want to accumulate $1,000,000 at a faster pace. Leave the Interest Rate on Your Savings at 6%, but change the Number of Years from thirty years to twenty years. What is the amount of money you need to save per year over twenty years in order to achieve $1,000,000? Overall, the analysis here illustrates that it is possible to accumulate $1,000,000 if you save consistently over time. Personal Finance by Jeff Madura Column 5 $0 0% $0 $0 $0 $0 $0 $0 $0 Personal Finance by Jeff Madura Personal Finance by Jeff Madura Name: Date: Chapter 4 Building Your Own Financial Plan 1. Determining Your FICA Taxes Insert your gross income below so that the template can determine your FICA taxes for the year. If you did not work this year, you can determine your FICA taxes based on your expected income next year, or once you graduate and start your expected occupation. Estimate Your FICA Taxes Your Gross Income Social Security Tax Rate = 6.2% Social Security Tax = Medicare Tax Rate = 1.45% Medicare Tax = Total FICA Taxes = $0 $0 $0 $0 2. Determining Your Personal Income Taxes Complete the template to determine your personal income taxes for the year, based on applying the standard deduction (instead of itemizing). If you did not work this year, you can determine your personal income taxes based on your expected income next year, or once you graduate and start your expected occupation. Your standard deduction is $12,000 if single, $24,000 if married. Template Used to Estimate Your Taxable Income $0 Your Gross Income $0 – IRA Contributions $0 – Student Loan Interest Payment = Adjusted Gross Income $0 $0 – Standard Deduction = Taxable Income $0 Template Used to Estimate Your Personal Income Taxes (single filers)* Your Taxable Income = $0 Tax Bracket Minimum $ $ 9,525 $ 38,700 $ 82,500 $ 157,500 $ 200,000 $ 500,000 Tax Bracket Maximum $ 9,525 $ 38,700 $ 82,500 $ 157,500 $ 200,000 $ 500,000 Tax Rate 10% 12% 22% 24% 32% 35% 37% Total Tax Tax $ $ $ $ $ $ $ $ CHILD TAX CREDIT: Taxpayers who have children can take a child tax credit of $2,000 per child (subject to some possible restrictions) so account for this credit if you have children in order to finalize the estimate of your personal income taxes. * Other filing statuses will have different tax bracket minimums and maximums Personal Finance by Jeff Madura – Name: Date: Chapter 5 Building Your Own Financial Plan 1. Identifying the Primary Services Provided by Financial Institutions Describe the primary services provided by a financial institution that you presently need (common examples include checking account, savings account, credit card, debit card, automated teller machines, mobile app). 2. Selecting Your Financial Institution Identify the primary financial institution that you use for the services that you need. (If you do not presently use a financial institution, select a financial institution that you may rely on in the future.) 3. Identifying Other Services You May Need in the Future Go to the Web site of your primary financial institution and review the different services that it offers. Identify a few services that it offers that you have not yet used, but might in the future (common examples include car loan, mortgage loan, small business accounts). Personal Finance by Jeff Madura Name: Nooshin Bidel Date: Chapter 6 Building Your Own Financial Plan 1. Assessing Your Liquidity Situation a. How do you plan to pay for expenses that you will incur this month? For example, do you have sufficient funds in your bank account, or will you need to use a credit card? I plan to settle my utiity expenses using the funds from my personal bank account where I have enough savings. Moreover, I aim to avoid using credit card where possible to prevent accumulated debt and interest charges. b. If you suddenly had an unexpected $1,000 expense (perhaps due to a car repair), how would you cover that expense? In the event of a $1000 unanticipated expense, I would utilize my emergency savings or any surplus from my monthly budget to cover the costs. If necessary, I will provisionally minimize discretionary spending to settle the expense. c. If you suddenly had an unexpected $3,000 expense (perhaps due to a car repair), how would you cover that expense? For unexpected expense of $3000, I would utilize combination of emergency savings, liquidate some investment assets and explore the short term lenaging options such as low interest personal loan to cover the deficit with interfering with long term financial obligations. Personal Finance by Jeff Madura Name: Nooshin Bidel Date: Chapter 7 Building Your Own Financial Plan 1. Evaluating Your Credit Report a. Obtain your credit report from one of the credit bureaus (Equifax, Experian, and TransUnion). You can obtain a free report from www.annualcreditreport.com (get only the report; do not try to obtain your credit score). You should not have to pay to receive a report so do not provide a credit card number when requesting a credit report. Review your credit report. Summarize the types of information that are presented in the report. After obtaining a credit report from www.annualcreditreport.com, I examined various sections. The report includes personal information such as name, address, and employment history, along with credit accounts, payment history, credit inquiries, and any public records like bankruptcies or liens. It also lists creditor contact information and dispute procedures. b. Does the credit report seem to be accurate? Yes or no. If not, identify the type of error that you noticed in the report. Yes, the credit card appears accurate. Personal Finance by Jeff Madura Name: Nooshin Bidel Date: Chapter 8 Building Your Own Financial Plan 1. Evaluating Your Use of Credit a. Do you have any credit card balance that is not paid off in a timely manner (and therefore subject Yes, I have a credit card balance subject to interest charges to interest rate charges)? If so, what is the interest rate that you pay? The interest rate I pay is 18%. % b. Do you have any funds in checking or savings accounts that could be used to pay off that balance? Despite having this credit card balance, I do have funds available in both my checking and savings accounts that could be utilized to pay off the balance in full. Using these funds would prevent further accumulation of interest charges. c. When do you hope to pay off the balance that is subject to the interest charges? My goal is to pay off the balance subject to interest charges within the next three months. This timeline allows me to avoid accruing excessive interest expenses while ensuring that I can comfortably manage my other financial obligations. d. What is the source of funds that you plan to use to pay off the balance? To pay off the balance, I plan to allocate a portion of my monthly net cash flow. I can gradually reduce the outstanding balance over time by budgeting and prioritizing debt repayment. This approach ensures that I maintain financial stability while working towards becoming debt-free. 2. Evaluating Your Credit Limit on Credit Cards a. Calculate your total credit limit (the total credit available on all of your credit cards). Are you satisfied with your credit capacity? If not, explain how you may try to change it and why. I have two credit cards with limits of $2,500 and $4,000, respectively. To calculate my total credit limit, I add the limits of both credit cards: $2,500 + $4,000 = $6,500. Considering my financial needs and spending habits, I am satisfied with my current credit capacity. However, if I needed a higher credit limit for emergencies or larger purchases, I will reach out to my credit card companies to request an increase while offering evidence of responsible credit usage. b. What factors do you think the credit card companies considered in setting your credit limit(s)? Credit card companies consider various factors when setting credit limits, including credit score, income, employment status, credit history, debt-to-income ratio, and existing credit accounts. They evaluate these factors to gauge an individual’s creditworthiness and ability to manage credit responsibly. c. Do you think the companies are likely to change your credit limit in the future? Why or why not? Credit card companies may change my credit limit in the future based on several factors, including changes in my financial situation, payment history, credit utilization, and overall creditworthiness. If I demonstrate responsible credit management, such as making timely payments and maintaining a low credit utilization ratio, they may be more inclined to increase my credit limit. However, significant negative changes in my financial situation or credit behavior could result in a reduction of my credit limit. Personal Finance by Jeff Madura Name: Nooshin Bidel Date: Chapter 9 Building Your Own Financial Plan 1. Assessing Your Possible Purchase Versus Lease of a New Car If you are considering the purchase of a new car, input your actual information in the template to compare the purchase versus the option to lease the car. Even if you are not planning to purchase or lease a new car, use the information quoted by a specific car dealer (go to any car dealer Web site to obtain a quote). If you cannot obtain actual data, use the following data to assess the buy versus lease decision. Assume that you received the following offer: • Option 1: Purchase a car with $2,000 down. If you invested those funds instead, you could earn 3%. You would borrow the remaining money over a 48-month period, and your loan payment would be $450 per month. You believe you could sell the car for $10,000 at the end of 4 years. • Option 2: Lease the car with a $1,000 security deposit. Your monthly lease payment would be $300 per month over 48 months. (HINT: If you run the analysis properly, the total cost of purchasing the car should be less than the total cost of leasing by about $680 but show your analysis that leads to this outcome.) Cost of Purchasing the Car Down payment Interest rate Number of months Forgone interest on down payment Monthly payment on car loan Total monthly payments $2,000 7.200% 48 $576 $450.00 $21,600.00 Total Expected amount to be received when car is sold Total cost of purchasing $24,176.00 10,000.00 $14,176.00 Cost of Leasing the Car Security deposit Forgone interest Monthly lease payment Total monthly payments Total cost of leasing $1,000 $288.00 $300.00 $14,400.00 $14,688.00 Cost of Purchasing vs. Leasing $14,688.00 $14,700.00 $14,550.00 $14,400.00 $14,250.00 $14,176.00 $14,100.00 $13,950.00 $13,800.00 Total cost of purchasing Total cost of leasing a. Based on your analysis, would you purchase or lease the car? Based on the information above I would purchase the car. b. Why? The total cost of leasing the car in this scenario is $14,688 and the total cost of purchasing the car is $14,176 even though the monthly payment on the leased car is less than purchasing but at the end by leasing the car you will end up paying more interest and you have no ownership of the car. Personal Finance by Jeff Madura Name: Nooshin Bidel Date: Chapter 10 Building Your Own Financial Plan 1. Considering the Purchase of a Home If you are presently planning to buy a home, you can use actual data in your city to conduct your analysis. However, even if you are not presently searching for a home, you can still benefit from conducting the analysis, because it may offer you more insight into whether you can afford to buy a home and how much your monthly mortgage payment would be. If you are not working full-time, you can conduct your analysis as if you have completed your degree and begun your professional occupation. Use Zillow.com or an alternative Web site that allows you to review homes for sale in a neighborhood where you would like to live. Review the homes for sale as if they were available at the existing sales prices at the time you begin your professional occupation. Be realistic on how much you might be able to afford when you begin your professional occupation. The homes that you review should be priced at no more than three times your expected annual income at the time you begin your professional career. Select one home that you especially like and think is relatively good value (based on the very limited research you conducted) if you were ready to purchase a home today. Identify the home you selected in some manner (on some home Web sites such as Zillow, each home has its own Web address) a. What is the sales price of the home? $ 195,000 b. What is the square footage of the home? 1344 Price per square foot 145 c. Why did you select this home? What in particular made it stand out above the other homes for sale? This home stood out more than others because of its interior design, finishing, and space. Even though it was built in 1975, there is very little difference with recent homes on the listings. The home has large windows, a built-in hutch, a step-in shower stall, a storage pantry, an eat-in kitchen, a spacious side porch, and a large closet. Secondly, it is the only home sitting on more than 1300 SQFT in the Williow Ranch community. Thirdly, the sale price includes a washer and refrigerator. Furthermore, its listing price is way below 2 times my annual salary, which makes it my dream home, meeting personal and assignment requirements. Finally, it is a Double Wide Mobile Home with 2 beds and 2 baths with a lot of privacy in the master bedroom. 2. Estimating Your Mortgage Payments When Buying a Home Assume that you want to purchase the home that you selected for the quoted sale price. Assume that you make a down payment of 10% of the home, and obtain a mortgage loan for the remaining 90%. Assume you can obtain a thirty-year mortgage at an interest rate of 5%. Use this information to determine your amortization schedule. The following template can be used to derive the monthly mortgage payment based on your input. The template does not account for property taxes or home insurance, so you should keep those expenses in mind as well when considering the purchase of a home. Answer the questions below the amortization schedule. TEMPLATE USED TO ESTIMATE YOUR MORTGAGE PAYMENTS Loan Amount Number of Years Annual Interest Rate Monthly Payment $175,500 30 5.00% $942 Amortization Schedule for Year 1 Monthly Payment 1 2 3 4 5 6 7 8 9 10 11 12 Payment $942 $942 $942 $942 $942 $942 $942 $942 $942 $942 $942 $942 Principal $211 $212 $213 $214 $214 $215 $216 $217 $218 $219 $220 $221 Interest $731 $730 $729 $729 $728 $727 $726 $725 $724 $723 $722 $721 Balance $175,289 $175,077 $174,865 $174,651 $174,437 $174,222 $174,005 $173,788 $173,570 $173,351 $173,131 $172,911 Compare the allocation of principal versus interest paid per year on the loan. (The Excel worksheet will create a bar graph based on your input.) Amortization Schedule (Annual Totals) Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Annual Payments $11,305 $11,305 $11,305 $11,305 $11,305 $11,305 $11,305 $11,305 $11,305 $11,305 $11,305 $11,305 $11,305 $11,305 $11,305 Principal $2,589 $2,722 $2,861 $3,007 $3,161 $3,323 $3,493 $3,672 $3,860 $4,057 $4,265 $4,483 $4,712 $4,953 $5,207 Interest $8,716 $8,584 $8,444 $8,298 $8,144 $7,983 $7,812 $7,634 $7,446 $7,248 $7,041 $6,823 $6,593 $6,352 $6,099 Balance $172,911 $170,189 $167,328 $164,321 $161,159 $157,836 $154,344 $150,672 $146,812 $142,755 $138,491 $134,008 $129,296 $124,343 $119,136 Interest vs. Principal Allocation $12,000 $9,000 $6,000 Interest Principal a. What is the monthly mortgage payment? $3,000 It is $942 Per Month. b. Now consider your payment if you were able to obtain a mortgage at a 4% interest rate. By how much would your monthly payment decrease? $0 interest rate, the monthly payment would be $838. Therefore, my monthly payment would be With a 4% 1 3 5 7 Years 9 11 13 15 reduced by $104. c. Now consider your payment if you obtained a fifteen-year mortgage instead of the thirty-year mortgage at the 4% interest rate. By how much would your monthly payment increase? With a 4% interest rate and 15 years, the monthly payment would be $ 1,298. Therefore, my monthly payment would increase by $356. d. There are obvious trade-offs between a thirty-year and a fifteen-year mortgage. Would you prefer to have a thirty-year or a fifteen-year mortgage? Why? I prefer a thirty-year mortgage. This is because I will pay comfortably based on my cash flow, thus avoiding financial strains. Even though I may end up paying more interest, there is always room for improvement, and I plan to restructure my mortgage payment period as I streamline my cashflows with time. For example, my current net cash flow is $925. I plan to repay my credit card balance and minimize discretionary spending to settle the expenses; therefore, I can channel the extra income into making it $1298, thus changing my mortgage to a 15-year repayment plan. After making the changes, I will pay less interest and complete the mortgage without financial pressure and struggles. Personal Finance by Jeff Madura Name: Date: Chapter 11 Building Your Own Financial Plan 1. Assessing Your Auto Insurance Coverage Review your auto insurance policy. a. How much liability coverage do you have? b. Do you think that coverage is sufficient? If not, explain how you might change it in the future. c. How much medical payments coverage do you have? d. Do you think that coverage is sufficient? If not, explain how you might change it in the future. e. How much uninsured motorist coverage do you have? f. Do you think that coverage is sufficient? If not, explain how you might change it in the future. g. How much collision and comprehensive coverage do you have? h. Do you think that coverage is sufficient? If not, explain how you might change it in the future. Personal Finance by Jeff Madura Name: Nooshin Bidel Date: Chapter 12 Building Your Own Financial Plan 1. Assessing Your Health Insurance Coverage a. Do you have an HMO plan or a PPO plan? I have an HMO plan. b. Are you satisfied with your health plan? If not, how do you plan to change it in the future? Yes, I am satisfied with the current HMO plan. c. What is your deductible? My health care insurance and expenses deductible is $300. It is the same amount indicated in my Chapter 2 Personal Cash Flows Statement template. d. Are you satisfied with your deductible? If not, how do you plan to change it in the future? Yes. I am satisfied with my deductible because it currently meets my insurance needs. In the future, when my health care insurance needs or expenses change, I will adjust in the best way possible. Personal Finance by Jeff Madura Name: Nooshin Bidel Date: Chapter 13 Building Your Own Financial Plan Life insurance is the most controversial and hard-to-select form of insurance. It is controversial because no entity requires that you have life insurance in the way that you are required to insure an auto or home. It is also the one form of insurance for which you, the policyholder, will not be the one to file the claim. Selection is difficult because the insurance industry has numerous policy options for term and whole life insurance. Insurance needs should be reviewed when major changes occur in your life. Specifically, this review should take place if you marry, divorce, or become a parent. 1. Do you need life insurance? If so, how much and what type of policy will suit your needs? Yes, I need life insurance. I need a $456,527 Term Life Insurance policy for thirty years. I am young, healthy, and about to begin my professional life. Therefore, I need to be financially secure and be able to pay for my mortgage and long-term liabilities, as well as fund my master’s education as I grow career-wise and seek to meet my financial goals. Also, I need to ensure that there are funds to educate my children. 2. What do you anticipate your life insurance needs to be in the future? I anticipate increased healthcare needs, thus specialized life insurance but easily manageable. As people age, their health needs become more, and I ought to be able to cater to specialized life insurance needs. Secondly, I will have a family with kids that needs insurance. I anticipate a decreased mortgage interest because as the years progress, the interest reduces, and my cash flows will increase. Furthermore, after paying my long-term debts, my net cash flows will Personal Finance by Jeff Madura Name: Date: Chapter 14 Building Your Own Financial Plan 1. Evaluating Your Risk Tolerance Investments that offer a high potential return typically are subject to much uncertainty. Take the quiz in the template below to determine if your temperament is suited to making investments that are subject to much uncertainty. Template That Measures Your Risk Tolerance . Answer True or False by entering an x in the appropriate box. Be sure to enter an x for only one box (True or False) per answer, otherwise your results will be incorrect. TRUE FALSE TRUE FALSE TRUE FALSE TRUE FALSE TRUE FALSE TRUE FALSE TRUE FALSE TRUE FALSE TRUE FALSE TRUE FALSE Score 0 1. If I own stock, I will check its price at least daily if not more often. 2. When driving on an interstate, I never exceed the posted speed limit even when traffic and weather would permit a higher speed. 3. If the price of my stock declines, my first reaction is to sell. 4. Another stock market crash similar to 1929 could occur very unexpectedly. 5. When I fly in less than perfect weather, I tend to get nervous and concerned about my safety. 6. If I sold a stock at a loss of more than 25%, it would greatly shake my confidence in my ability to invest. 7. I intensely dislike blind dates. 8. When I travel, I write down a packing list to be sure that I don’t forget anything. 9. When traveling with others, I prefer to do the driving. 10. Before buying a stock I would want to talk to at least two other people to confirm my choice. Results 0-3 True: You have the risk tolerance to invest in individual common stocks. 4-6 True: You would be a nervous investor, but with more knowledge and a few successes, you could probably raise your risk tolerance to a suitable level. Mutual funds might prove a good starting point for your level of risk tolerance. 7-10 True: You are probably a very conservative and risk-intolerant investor who is probably better suited to a bond portfolio. 0 You have the risk tolerance to invest. 4 You would be a nervous investor, but with more knowledge and a few successes, you could probably raise your risk tolerance to a suitable level for investing. Mutual funds might prove a good starting point for your level of risk tolerance. 7 You are probably a very conservative and risk-intolerant investor that is probably better suited to a bond portfolio. Personal Finance by Jeff Madura Name: Nooshin Bidel Date: Chapter 15 Building Your Own Financial Plan 1. Selecting a Stock in Which You Wish to Invest a. Select one publicly traded company in which you would like to invest if you had money to invest today. What is the name of the stock you selected? Alphabet, Inc. b. Go to the Yahoo finance Web site (https://finance.yahoo.com/) to look up its ticker symbol and other information about the stock. What is the stock’s ticker symbol? GOOG or GOOGL c. The stock price chart displayed by Yahoo for the stock you selected can show the stock price trend for various periods, such as one day (1D), six months (6M), and one year (1Y). Explain how the price of this stock has changed over the last year. The stock price has been steadily rising over the past one year. On May 8th 2023, the stocks price traded at $107.77. By July 14th, 2023 the closing stock price was $125.42. At the end of the year, the stock was trading a closing price of $139.99. By May 3rd 2024, the price had increased to $167.21. This translates to a change of about 0.18% of compounded average daily growth rate of 0.12% d. Why do you think this stock will perform well in the future? According to Yahoo! Finance (2024), the stock’s current forward price earnings ratio (PE) is 22.52x. Remember that a forward PE ratio is calculated by dividing the current share price of a company by the estimated future (“forward”) earnings per share (EPS). This means that at the current price of $166,62, the EPS would be $7.39 from the current $6.52. A higher predicted EPS augurs well for the Personal Finance by Jeff Madura Name: Nooshin Bidel Date: Chapter 16 Building Your Own Financial Plan 1. Assessing the Economy and Investment Climate a. Conduct a search on the Internet for information about economic conditions and the investment climate. Use any sources that are updated and credible in your opinion. What sources did you find? I found government agencies’ web pages, business websites, and investment advisors’ websites. They include the following 7 sources; Adams, M. & Schmidt, J. (2024, March 21). Best Investments for A Stock Market Crash. Forbes Advisor. https://www.forbes.com/advisor/investing/best-investments-stock-market-crash/ b. Based on your review, do you think economic conditions are favorable for investing at this time? Yes. I think the conditions favor investment at this time. c. Explain your opinion about whether economic conditions are favorable for investing at this time. The economic conditions and investment climate favor investment at this moment due to various reasons. First, overall economies steadily grow from the last quarter of 2023 into the first quarter of 2024. I associate this with excellent market performance amid risky economic speculations. Secondly, investors had a fruitful and prosperous year in 2023. This points to a possible upward d. If you were to invest in bonds at this time, what type of bonds would you invest in? I would invest in U.S. Treasury Bonds. Why? This is because I trust and have faith in their market steadiness. The U.S government backs them up, giving them credit and customer trustworthiness. Also, I can buy directly from the Personal Finance by Jeff Madura Name: Nooshin Bidel Date: Chapter 17 Building Your Own Financial Plan Selecting a Sector Mutual Fund in Which You Wish to Invest a. Sector mutual funds invest in stocks in a particular sector or industry, such as financial, technology, energy, healthcare, industrials, utilities, or real estate. Select one type of sector mutual fund in which you would like to invest in if you had money to invest today. Identify that sector here: Technology is the identified sector Why do you believe that sector will perform well in the stock market? because it has the potential to grow due to advancements brought about by innovations. It has established market dominance by “tech giants” with strong reputations and brand recognition, and it takes advantage of the digital transformations in various industries, including financing, b. Search on your Web browser for the type of sector mutual fund that you selected and you will see various investment companies (such as Fidelity and Vanguard) that manage the particular type of sector mutual fund that you selected. For the sector that you chose, identify one specific sector mutual fund that you would like to purchase. The selected technology mutual fund is Fidelity Select Telecommunications Port (FSTCX). c. What is the present price of the specific mutual fund in which you wish to invest? According to Yahoo Finance (2024) and Fidelity Investments (n.d.), the present fund price is d. What is the expense ratio of the specific mutual fund in which you wish to invest? The fund expense ratio is 0.77%. Personal Finance by Jeff Madura Name: Nooshin Bidel Date: Chapter 18 Building Your Own Financial Plan 1. Your Asset Allocation Decision a. Enter the market value of your investments in the following template, and the online template can provide you with a pie chart showing your asset allocation. If you do not have any investments, assume that you were just given $10,000 to invest, so that you can make the asset allocation decision. Type of Investment Checking Account Savings Account CDs Money Market Mutual Fund – Large Cap Mutual Fund – Small Cap Mutual Fund – International Mutual Fund – Corporate Bonds Mutual Fund – Government Bonds REITs Large-Cap Stock Small-Cap Stock International Stock Equity in Home Other Real Estate Holdings Investment in Collectibles (e.g., Antiques, Art) Other Investment Other Investment Other Investment Other Investment Total Investments MARKET VALUE OF INVESTMENTS PERCENTAGE OF FUNDS ALLOCATED TO THIS INVESTMENT * $500 1,000 2,000 500 1,000 500 500 400 1,000 100 600 400 400 200 500 100 50 100 150 0 $10,000 5.0% 10.0% 20.0% 5.0% 10.0% 5.0% 5.0% 4.0% 10.0% 1.0% 6.0% 4.0% 4.0% 2.0% 5.0% 1.0% 0.5% 1.0% 1.5% 0.0% 100.0% *To compute the percentage manually, take the dollar amount in the “Market Value Investment” column for each type of investment and divide it by the dollar amount for “Total Investments.” Checking Account Savings Account CDs Money Market Mutual Fund – Large Cap Mutual Fund – Small Cap Mutual Fund – International Mutual Fund – Corporate Bonds Mutual Fund – Government Bonds REITs Large-Cap Stock Small-Cap Stock International Stock Equity in Home Other Real Estate Holdings Investment in Collectibles (e.g., Antiques, Art) Other Investment Other Investment Other Investment Other Investment MARKET VALUE OF INVESTMENTS b. Review the pie chart that was created in response to the data you input in the template. Do you think your investments are sufficiently diversified? If not, how might you change your investments in the future? Reviewing the pie chart generated, there seems to be a notable level of diversification. For instance, the percentage allocated for cash equivalent investments is 40%. They include; checking account, savings account, CDs and the money market. Additionally, the allocation for equity investments comprising of mutual funds and stocks is 35%; fixed income 2. As you make additional investments in the future, how do you plan on allocating your assets? I intend to allocate my additional investments in a more balanced portfolio that reflects my risk tolerance and financial goals. Specifically, I will allocate additional resources in fixed income investments that provide a stable income. Moreover, I aim to increase my investment in real estate assets such as REITs and rental properties so as to achieve portfolio diversification. Personal Finance by Jeff Madura Name: Date: Chapter 19 Building Your Own Financial Plan 1. Estimating the Value of Your Retirement Fund Upon Your Retirement The following template allows you to determine how much money you will have in your retirement account by the time you retire based on assumptions about how much you contribute per period and the rate of return on money invested in your retirement account. a. Once you begin your professional career, how much do you plan to contribute per year toward your retirement account? b. How many years do you plan to work in your career until retirement? c. Input your expected annual return on your investment in the third row of the template. For now, start with an assumed 3% rate of return. (You can change it later.) Template That Estimates Total Retirement Funds (Future Value of an Annuity) Retirement contributions per year Number of Years Annual rate of return per period Value of Your Retirement Fund Upon Your Retirement #VALUE! Based on your input, what is the estimated total amount of money you would have in your retirement account? d. Now use a 7% return on your investment. By how much would your retirement account grow by the time of retirement if you earned 7% on your investment? e. Now consider if you worked in your career for three additional years before you retire, and therefore contribute to your retirement account for three more years. Using the 7% return, by how much would your retirement account grow by the time of retirement if you worked three more years? f. Now use whatever rate of return you think you can achieve, and experiment with different number of years to retirement. Based on your analysis, what is your conclusion regarding when you can afford to retire? g. What is the estimated total amount of money that you would have in your retirement account based on time when you plan to retire? Personal Finance by Jeff Madura Name: Date: Chapter 20 Building Your Own Financial Plan 1. Your Estate Planning a. Will you create a will on your own or with an attorney’s assistance? b. What special stipulations (for an heir, executor, or donations to charity) will you include? c. Do you need to establish trusts or gifts to reduce your estate’s tax liability? d. Will you assign power of attorney and/or durable power of attorney? Personal Finance by Jeff Madura Name: Date: Chapter 21 Building Your Own Financial Plan 1. Turning Your Cost Reductions Into Wealth Many personal finance decisions can effectively increase your wealth not by increasing your income, but by reducing your expenses. Avoiding an unnecessary $100 expense is just as beneficial as generating a $100 bonus from your job, and in fact it may be more beneficial because the bonus might be taxed. To the extent that you can avoid an unnecessary expense on an annual basis, you can improve your net cash flow on an annual basis. Review your list of cash outflows that you created earlier in the school term (in Chapter 2). Identify a large existing expense that occurs every year that you could reduce. For example, you might pay $1,000 per year for an annual health club membership, but could exercise on your own without using the health club facilities. By discontinuing the membership, you could avoid that annual expense, which would enhance your net cash flow every year. Assume that you deposit the amount of your cost savings every year. The following template will help you estimate the amount you would save over time once you provide some input. a. Identify the type of expense that you incur that you might be willing to avoid or decrease. b. Explain how you could avoid or reduce that expense without excessive sacrifice. c. How much money would you save per year if you avoided or reduced the expense in the manner described in your previous answer? Now assume that you deposit the amount you saved every year as a result of avoiding or reducing this expense every year. That deposited amount represents an annuity. You can apply the future value of annuity concept (from Chapter 3) to estimate how your savings will grow over time in the template as a result of reducing this expense every year. Insert the Deposited Amount Per Year (based on reducing your expense) in the top row of the template. Insert 5 for Number of Years in the second row of the template in order to see how your savings would grow over a five-year period. Insert 3% for the Interest Rate on Your Savings (row 3) of the template, or a different interest rate if you think you could earn a different rate on the savings. The template estimates the future value of your savings if you reduced your expense in the manner you describe and deposit the money saved over time. Template That Estimates Total Retirement Funds (Future Value of an Annuity) Deposited amount per year Number of Years Interest rate on your savings Future Value of Your Savings #VALUE! d. What is the future value of your savings in five years that would result from your strategy to reduce your expenses? e. Now change the number of years to 10. What is the future value of your savings in ten years that would result from your strategy to reduce your expenses? Your initiative to reduce expenses each year increases your net cash flow. You can use the increased net cash flow to either increase your assets (buy stock etc.) or reduce your liabilities (pay off existing debt, etc.). Since your net worth equals your assets minus your total liabilities, your strategy to boost your net cash flows every year increases your net worth and therefore your wealth. Personal Finance by Jeff Madura Name: Date: Your Financial Planning Decisions Building Your Own Financial Plan Here is a summary of some of your financial planning decisions from Chapters 1 through 20. Some of Your Financial Planning Decisions Chapter 1 1. What is your expected occupation upon completion of your degree? Upon completion of my degree, I expect to work as a software engineer specializing in artificial intelligence and machine learning. 2. What is the entry-level annual salary for your expected occupation? The entry level annual salary for software engineer in my state is at average of $140,000 depending on the company. Chapter 2 1. Assess your monthly net cash flow. Are you satisfied with it for now given your existing work and/or school schedule? If not, how can you improve the monthly net cash flow in the future? With a monthly net cash flow of $925, I’m reasonably satisfied, considering my current work or school schedule. However, there’s always room for improvement. To enhance my net cash flow in the future, I could explore additional income sources like freelancing, investing in income-generating assets, or reducing discretionary expenses such as recreation and other non-essential items. Adjusting my budget to prioritize savings could also bolster financial security. 2. Assess your personal balance sheet. Are you satisfied with it for now given your existing work and/or school schedule? If not, how can you improve it in the near future? Based on my personal balance sheet, I have a networth of $61,850. While I am satisfied with it to some extent, I believe there is room for improvement. For instance,I should focus on reducing my credit card balance and long term liabilities ($15,000) to improve my net woth. Furthermore, I would increase my investment assets to aid in improving long term fiancial stability. Chapter 3 1. Based on the expected annual raise that you input in the second row of the fifth column, what is your expected annual salary twenty-five years after you begin your occupation? $0 Chapter 4 1. What is your taxable income for the year using your actual salary or expected starting salary? $0 Chapter 5 1. Identify the financial institution you selected. 0 2. What financial services do you anticipate needing in the future? 0 Chapter 6 1. How do you plan to pay for expenses that you will incur this month? For example, do you have sufficient funds in your bank account, or will you need to use a credit card? I plan to settle my utiity expenses using the funds from my personal bank account where I have enough savings. Moreover, I aim to avoid using credit card where possible to prevent accumulated debt and interest charges. 2. If you suddenly had an unexpected $3,000 expense (perhaps due to a car repair), how would you cover that expense? For unexpected expense of $3000, I would utilize combination of emergency savings, liquidate some investment assets and explore the short term lenaging options such as low interest personal loan to cover the deficit with interfering with long term financial obligations. Chapter 7 1. Review your credit report. Summarize the types of information that are presented in the report. After obtaining a credit report from www.annualcreditreport.com, I examined various sections. The report includes personal information such as name, address, and employment history, along with credit accounts, payment history, credit inquiries, and any public records like bankruptcies or liens. It also lists creditor contact information and dispute procedures. 2. Does the credit report seem to be accurate? Yes or no. If not, identify the type of error that you noticed in the report. Yes, the credit card appears accurate. Chapter 8 1. Calculate your total credit limit (the total credit available on all of your credit cards). Are you satisfied with your credit capacity? If not, how may you change it and why? I have two credit cards with limits of $2,500 and $4,000, respectively. To calculate my total credit limit, I add the limits of both credit cards: $2,500 + $4,000 = $6,500. Considering my financial needs and spending habits, I am satisfied with my current credit capacity. However, if I needed a higher credit limit for emergencies or larger purchases, I will reach out to my credit card companies to request an increase while offering evidence of responsible credit usage. Chapter 9 1. Should you lease or purchase a car and why? Based on the information above I would purchase the car. Chapter 10 1. What is your mortgage payment given the assumptions in the text? It is $942 Per Month. 2. Now consider your payment if you obtained a fifteen-year mortgage instead of the thirty-year mortgage. How much would your payment change? With a 4% interest rate and 15 years, the monthly payment would be $ 1,298. Therefore, my monthly payment would increase by $356. Chapter 11 1. How much liability coverage do you have? 0 2. Do you think that coverage is sufficient? If not, explain how you might change it in the future. 0 3. How much medical payments coverage do you have? 0 Chapter 12 1. Do you have an HMO plan or a PPO plan? I have an HMO plan. 2. Are you satisfied with your health plan? If not, how do you plan to change it in the future? Yes, I am satisfied with the current HMO plan. Chapter 13 1. Do you need life insurance? If so, how much and what type of policy will suit your needs? Yes, I need life insurance. I need a $456,527 Term Life Insurance policy for thirty years. I am young, healthy, and about to begin my professional life. Therefore, I need to be financially secure and be able to pay for my mortgage and long-term liabilities, as well as fund my master’s education as I grow career-wise and seek to meet my financial goals. Also, I need to ensure that there are funds to educate my children. 2. What do you anticipate your life insurance coverage needs to be in the future? I anticipate increased healthcare needs, thus specialized life insurance but easily manageable. As people age, their health needs become more, and I ought to be able to cater to specialized life insurance needs. Secondly, I will have a family with kids that needs insurance. I anticipate a decreased mortgage interest because as the years progress, the interest reduces, and my cash flows will increase. Furthermore, after paying my long-term debts, my net cash flows will increase, too. Thus, I anticipate meeting my life insurance Chapter 14 1. What is your risk tolerance score? 0 Chapter 15 1. What is the name of the stock you selected? Alphabet, Inc. 2. Why do you think this stock will perform well in the future? According to Yahoo! Finance (2024), the stock’s current forward price earnings ratio (PE) is 22.52x. Remember that a forward PE ratio is calculated by dividing the current share price of a company by the estimated future (“forward”) earnings per share (EPS). This means that at the current price of $166,62, the EPS would be $7.39 from the current $6.52. A higher predicted EPS augurs well for the price of the stock. it is likely tthat the price of the stock will increase in the future. Similarly the analysts suggest that the company’s forward dividend and forward dividend yield shall be $0.80 and 0.48% respectively per share. this Chapter 16 1. Based on your review of current economic conditions, do you think it is a good time to buy bonds? Yes. I think the conditions favor investment at this time. 2. If you were to invest in bonds at this time, what type of bonds would you invest in? I would invest in U.S. Treasury Bonds. Chapter 17 1. Identify the industry sector you would invest in at this time. Technology is the identified sector 2. Why do you believe that sector will perform well in the stock market? because it has the potential to grow due to advancements brought about by innovations. It has established market dominance by “tech giants” with strong reputations and brand recognition, and it takes advantage of the digital transformations in various industries, including financing, retail, and healthcare, which use technology to reduce costs, enhance Chapter 18 1. Is your current asset allocation appropriate? If not, what changes will you make to better diversify your investments? Reviewing the pie chart generated, there seems to be a notable level of diversification. For instance, the percentage allocated for cash equivalent investments is 40%. They include; checking account, savings account, CDs and the money market. Additionally, the allocation for equity investments comprising of mutual funds and stocks is 35%; fixed income investments comprising of corporate bonds and government bonds is 14%; real estate investment comprising of REITs, equity in home and other real estate holdings is 8% while 2. As you make additional investments in the future, how do you plan to allocate your assets? I intend to allocate my additional investments in a more balanced portfolio that reflects my risk tolerance and financial goals. Specifically, I will allocate additional resources in fixed income investments that provide a stable income. Moreover, I aim to increase my investment in real estate assets such as REITs and rental properties so as to achieve portfolio diversification. Chapter 19 1. How much will you contribute to your retirement? 2. How many years do you plan to work in your career until retirement? 3. Based on your input, what is the estimated total amount of money you would have in #VALUE! your retirement account? Chapter 20 1. Will you create a will on your own or with an attorney’s assistance? What special stipulations (for an heir, executor, or donations to charity) will you include? 2. Do you need to establish trusts or gifts to reduce your estate’s tax liability? 3. Will you assign power of attorney and/or durable power of attorney? Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 1: Overview of a Financial Plan CASE QUESTIONS 1. Help the Sampsons prioritize their financial goals. Specifically, assess whether their primary goal at this point should be saving for their children’s college education in the future, versus buying a new car for Sharon. 2. The Sampsons hope that $1,000 per month of Sharon’s salary can be used to boost their savings. How can they monitor this goal over time to ensure that the money is used in this manner? Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 2: Planning with Personal Financial Statements Case Questions 1. Using the information in the case, prepare a personal cash flow statement for the Sampsons. Personal Cash Flow Statement Cash Inflows Dave’s Income Sharon’s Income Total Cash Inflows This Month $0 Cash Outflows Mortgage, home insurance and property taxes Internet Electricity and water Cellular Groceries Health care insurance and expenses Clothing Car expenses (insurance, maintenance, and gas) School expenses Recreation Credit card minimum payments Other Total Cash Outflows Net Cash Flows Cash Outflows 0 $0 Mortgage, home insurance and property taxes Internet Electricity and water Cellular Groceries Health care insurance and expenses Clothing Car expenses (insurance, maintenance, and gas) School expenses Recreation Credit card minimum payments Other 2.The Sampsons hope to have net cash flows of $1,000 per month so that they can add $1,000 per month to their savings. Based on their personal cash flow statement for last month, were the Sampsons be able to meet their goal of saving $1,000? If not, how do you recommend that they revise their personal cash flow statement to achieve their savings goals? Is there any particular cash outflow that seems unusually large that could possibly be reduced? 3. Prepare a personal balance sheet for the Sampsons. Personal Balance Sheet Assets Liquid Assets Cash Checking account Savings account Total liquid assets $0 Household Assets Home Car Furniture Total household assets $0 Investment Assets Stocks Bonds Mutual Funds Total investment assets $0 Real Estate Vacation home Other Total real estate $0 Total Assets $0 Liabilities and Net Worth Current Liabilities Short-term Loans Credit card balance Total current liabilities $0 Long-Term Liabilities Mortgage Car loan Total long-term liabilities $0 Total Liabilities $0 Net Worth $0 4. What is the Sampsons’ net worth? Based on the personal cash flow statement that you prepared in question 1, do you expect that their net worth will increase or decrease in the Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 3: Applying Time Value Concepts 1. Help the Sampsons determine how much they will have for the children’s education by calculating how much $3,600 in annual savings will accumulate to if they earn interest of (a) 2 percent and (b) 5 percent. Next, determine how much $4,800 in annual savings will accumulate to if they earn interest of (a) 2 percent and (b) 5 percent. Savings Accumulated Over the Next 12 Years (Based on Plan to Save $3,600 per Year at 2% or 5%) Amount Saved Per Year Interest Rate Years Future Value of Savings $0.00 $0.00 Savings Accumulated Over the Next 12 Years (Based on Plan to Save $4,800 per Year at 2% or 5%) Amount Saved Per Year Interest Rate Years Future Value of Savings $0.00 $0.00 2. What is the impact of the higher interest rate of 5% (instead of 2%) on the Sampsons’ accumulated savings? 3. What is the impact of the higher savings of $4,800 (instead of $3,600) on their accumulated savings? 4. If the Sampsons set a goal to save $70,000 for their children’s college education in 12 years, how would you determine the yearly savings necessary to achieve this goal? How much would they have to save by the end of each year to achieve this goal, assuming a 5 percent annual interest rate? Calculator: Savings Needed Each Year Future Savings Goal Interest Rate Years Savings Needed Each Year $0.00 Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 4: Using Tax Concepts for Planning 1. Help the Sampsons estimate their Federal Income Contributions Act (FICA) tax, which consists of Social Security and Medicare taxes. For 2018, the FICA tax rate is 7.65% for annual incomes less than $128,400. Gross Income FICA Tax Rate x FICA Tax $0 0.00 % $0.00 2. The Sampsons will use the standard deduction of $24,000 rather than itemize their deductions. Help the Sampsons estimate their taxable income by filling in the following worksheet. Gross Income Individual Retirement Account (IRA) Contributions Adjusted Gross Income Standard Deduction Taxable Income $0 $0 3. What is the Sampsons’ marginal tax rate? 4. Help the Sampsons determine their personal income tax by accounting for the child tax credits. The tax credit is $2,000 for each of their two children. Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 5: Banking and Interest Rates 1. Advise the Sampsons on the maturity to select when investing their savings in a CD for a down payment on a car. Discuss the advantages and disadvantages of the maturity that you recommend the Sampsons use to save for the down payment on a car. 2. Advise the Sampsons on the maturity to select if they decide to invest their savings in CDs for their children’s education. Discuss the advantages or disadvantages of the maturity that you recommend the Sampsons use to save for their children’s education needs. 3. If you thought that interest rates were going to rise in the next few months, how might this affect the advice that you give the Sampsons about investing in CDs with short-term versus long-term maturities? Personal Finance by Jeff Madura Name: Date: Date: The Sampsons—A Continuing Case Chapter 6: Managing Your Money 1. The Sampsons are starting to save money but still have not made any decision about investing their money in CDs. They are now concerned about potential repair expenses for Sharon’s car. They would like to have sufficient liquidity so that if they need to buy her a new car immediately, they could afford a down payment without being forced to cash in CDs early (because they would be charged a penalty). How might they revise their CD investing strategy to increase their liquidity? 2. Advise the Sampsons on money market investments they should consider to provide them with adequate liquidity. Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 7: Assessing and Securing Your Credit 1.Should the Sampsons accept the increase in the limit on their credit card even if they do not anticipate using it? 2. Advise the Sampsons on steps that they can take to reduce their exposure to identity theft. Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 8: Managing Your Credit 1. Advise the Sampsons on whether they should continue making minimum payments on their credit card or use money from their savings to pay off the credit balance. 2. The Sampsons are worried that by using savings to eliminate their credit card debt, they will reduce their assets and their net worth. Explain to the Sampsons how using savings to eliminate credit card debt affects their total assets, total liabilities, and net worth, and how it will improve their net cash flows over time. Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 9: Personal Loans 1. Advise the Sampsons on possible loan maturities. Access an online loan payment calculator. Input information to determine the possible monthly car payments for a three-year (36-month) payment period, a four-year (48-month) paymend, and a five-year (60-month) period. Enter the results in the following table: Three-Year (36month) Periods Four-Year (48-month) Five-Year (60-month) Periods Periods Interest rate Monthly payment Total finance payments Total payments including the down payment and the trade-in 2. What are the trade-offs among the three alternative loan maturities? 3. Based on the information on finance payments that you retrieved from the loan payment Web site, advise the Sampsons on the best loan maturity for their needs. 4. The Sampsons hope to have net cash flows of about $1,000 before considering their payment on a new car loan, but the main reason the Sampsons do not want a car payment of more than $500 is that they also want to save for their children’s college education. Offer your opinion on whether they should use some of their savings for their children’s college education to increase the car loan payment and therefore pay off the car loan more quickly. Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 10: Purchasing and Financing a Home 1. Use a Web site or a financial calculator to determine the monthly mortgage payment (excluding property taxes and insurance) on a $130,000 mortgage if the Sampsons obtain a new 30-year mortgage at the 5% interest rate. Mortgage loan Interest rate Years Loan payment $0 $0.00 2. The Sampsons expect that they will not move for at least three years. Advise the Sampsons on whether they should refinance their mortgage by comparing the savings of refinancing with the costs. Current mortgage payment New mortgage payment at 5% Monthly savings Annual savings Years in house after refinancing $0.00 $0.00 $0.00 3. Why is the Sampson’s potential benefit from refinancing their mortgage influenced by the number of years that they remain in the home after the refinancing? Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 11: Auto and Homeowner’s Insurance 1. Advise the Sampsons regarding their car insurance. Do they have enough insurance? Do they have too much insurance? How might they be able to reduce their premium? 2. Consider the Sampsons homeowner’s insurance. Do they have enough insurance? Do they have too much insurance? Should they increase their deductible? Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 12: Health and Disability Insurance 1. Make suggestions to the Sampsons regarding their health insurance. Do you think they should switch from the HMO to a PPO? Why or why not? 2. Do you think the Sampsons should purchase disability insurance? Why or why not? 3. Should the Sampsons purchase long-term care insurance? Why or why not? Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 13: Life Insurance 1. Determine the present value of the insurance benefits that could provide $40,000 per year over the next 15 years for the Sampson family. Assume that the insurance payment could be invested to earn 3 percent interest over time. Annual amount Number of years Annual interest rate Present value #VALUE! 2. Considering the insurance benefits needed to provide $40,000 over the next 15 years, plus the additional $300,000 of insurance coverage, what amount of insurance coverage is needed? 3. Dave Sampson is a social smoker. Because he only smokes occasionally, he would like to omit this information from his life insurance application. Advise Dave on the course of this action. Personal Finance by Jeff Madura Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 14: Investing Fundamentals 1. Compare the returns from investing in stock over the next 12 years by filling in the following worksheet: Savings Accumulated Over the Next 12 Years Normal Stock Weak Stock Strong Stock Market Conditions Market Conditions Market Conditions $0 $0 Amount Invested per Year Annual Return FVIFA (n=12 years) 0.0000 0.0000 0.0000 Value of Investments in 12 Years $0.00 $0.00 $0.00 2. Explain to the Sampsons why there is a trade-off when investing in bank CDs versus stock to support their children’s future college education. 3. Advise the Sampsons on whether they should invest their money each month in bank CDs, in stocks, or in some combination of the two to save for their children’s college education. Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 15: Investing in Stocks 1. Offer advice to the Sampsons about whether they should buy stocks that are rated highly by analysts. 2. Some web sites identify firms that were top performers the previous day. Should the Sampsons buy these stocks? Explain. Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 16: Investing in Bonds 1. Should the Sampsons consider investing a portion of their savings in bonds to save for their children’s education? Why or why not? 2. If the Sampsons decide to purchase bonds, what maturities should they consider, keeping in mind their investment goal? 3. If the Sampsons decide to purchase bonds, should they invest in corporate bonds or municipal bonds? Factor into your analysis the return they would receive. 4. The Sampsons learn that many corporate bonds have recently been downgraded due to questionable financial statements. However, the Sampsons are not concerned because the corporate bond they are considering is highly rated. Explain the possible impact of a downgrade of the corporate bond to the Sampsons, given their financial goals. Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 17: Investing in Mutual Funds 1. Why might mutual funds be more appropriate investments for the Sampsons than individual stocks or bonds? 2. Should the Sampsons invest their savings in mutual funds? Why or why not? 3. What types of mutual funds should the Sampsons consider, given their investment objective? Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 18: Asset Allocation 1. Advise the Sampsons regarding the soundness of their tentative decision to invest all their children’s college education money in a biotechnology mutual fund. 2. The Sampsons are aware that diversification is important. Therefore, they have decided that they will initially invest in one biotechnology mutual fund and then invest in three other biotechnology mutual funds as they accumulate more money. In this way, even if one mutual fund performs poorly, they expect that the other biotechnology mutual funds will perform well. How can the Sampsons diversify their investments more effectively? 3. A good friend of Dave’s informed him that the company he works for will announce a new product that will revolutionize the industry the friend works in. Dave is very excited about the prospective jump in the stock price. He is ready to buy some stock in the friend’s company. Advise Dave on this course of action. Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 19: Retirement Planning 1. If Dave and his employer contribute a total of $10,000 annually, how much will that amount accumulate to over the next 30 years, at which time Dave and Sharon hope to retire? Future Value of Annuity Contribution Years Annual rate of return Future value $0.00 2. If Dave contributes $7,000 per year to his retirement account, the Sampsons will have less disposable income, and will therefore have lower cash inflows as a result. Suggest some ways the Sampsons may be able to offset the reduction in cash inflows by reducing cash outflows (look back at their cash outflows in Chapter 2). Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 20: Estate Planning 1. Advise the Sampsons on how they can plan their estate to achieve their financial goals. 2. What important considerations are the Sampsons overlooking in their estate planning goals? 3. Dave recently met with an estate planner who offered to create an elaborate estate plan without asking Dave specific questions. What should Dave have done prior to meeting with the estate planner? Personal Finance by Jeff Madura Name: Date: The Sampsons—A Continuing Case Chapter 21: Integrating the Components of a Financial Plan 1. Explain how the Sampsons’ budgeting affects all of their other financial planning decisions. 2. How are the Sampsons’ liquidity and investment decisions related? 3. In what ways are the Sampsons’ financing and investing decisions related? 4. Explain how the Sampsons’ retirement planning decisions are related to their investment decisions. Personal Finance by Jeff Madura Name: Date: Brad Brooks—A Continuing Case Part 1: Tools for Financial Planning Brad Brooks is a continuing case that occurs at the end of every part. You will help Brad develop his financial plan using the key concepts presented in each part. You can fill in the blanks on the worksheets in the textbook at the end of each chapter, or in the appropriate section in MyLab Finance Your professor may provide more specific instructions on how to post your answers. Your friend, Brad Brooks, has no control of personal finances. Single and 30 years old, he has a good job at a technology company. His monthly disposable income is $4,000. Brad recently moved from his apartment where the rent was $1,400 per month to an expensive condo. His typical monthly expenses are as follows: Rent at condo Car payment (balance on car loan $10,000; market value of car $15,000) Utilities (gas, electric, Internet) Smartphone Health care insurance Groceries Clothes Car expenses (gas, insurance, maintenance) Entertainment (dining out, golf, weekend trips) Credit card payment $ $ $ $ $ $ $ $ $ $ 2,000 500 200 200 100 300 100 400 700 100 Brad commonly finances many purchases with his credit cards. His credit card balance is $8,000 and climbing. He normally pays $100 monthly to the credit card company, but would like to eventually pay off the balance completely, because he pays a very high interest rate on that credit. He also wishes he could pay off his car loan, which has a balance of $10,000, and about 20 months left on his existing car loan. Brad currently has about $1,000 in his checking account. He has furniture valued at $2,000 and owns stocks valued at $4,000. 1a. Prepare personal financial statements for Brad, including a personal cash flow statement and personal balance sheet. Personal Cash Flow Statement Cash Inflows Disposable income Total Cash Inflows Cash Outflows Rent Car payment Utilities Smartphone Health care insurance Groceries Clothes Car expenses Entertainment Credit card payment Total Cash Outflows Net Cash Flows This Month $0 0 $0 Personal Balance Sheet Assets Liquid Assets Cash Checking account Total liquid assets $0 Household Assets Car Furniture Total household assets $0 Investment Assets Stocks Total investment assets Total Assets $0 Liabilities and Net Worth Current Liabilities Credit card balance Total current liabilities $0 Long-Term Liabilities Car loan Total long-term liabilities $0 Total Liabilities $0 Net Worth $0 b. Based on these statements, make specific recommendations to Brad about what types of cash outflows he could cut to achieve his goals of paying off his credit card balance and his car loan. c. If Brad follows your advice, should he use the net cash flows to pay off his car loan or his credit card balance first? Why? 2. Brad believes that if he eliminates his debt and then saves $4,000 per year, and earns a reasonable return on his savings, he should be able to retire in 25 years. a. Assuming that Brad invests the $4,000 per year for 25 years, and achieves a return of 5% per year, how much savings will he accumulate in 25 years? Future Value of Annuity Contribution Years Annual rate of return Future value #VALUE! b. Compare the alternative of investing $4,000 every year for 25 years if he earns 8% instead of 5%. Future Value of Annuity Contribution Years Annual rate of return Future value #VALUE! c. Assume that Brad is able to earn 5% on his savings. Do you think that the future value of his savings will be sufficient for him to retire in 25 years assuming that his expenses continue to be similar to those he has now? [Consider that he would need to rely on his savings to cover his expenses over all his retirement years.] 3. Brad wants you to help him determine his taxes. His gross income is $58,700 for the year. He makes no contributions to his individual retirement account (IRA) and does not have a student loan. He will use the standard deduction of $12,000 since he is single. Estimate Brad’s FICA taxes and his personal income taxes. Personal Finance by Jeff Madura Name: Date: Brad Brooks—A Continuing Case Part 2: Managing Your Liquidity Your friend Brad Brooks has called you for additional guidance on dealing with his credit card balance of about $8,000. 1. Brad is frustrated with his high credit card balance (with an 18% interest rate). He wants to delay making any more payments on his credit card so that he can use his cash for other purposes. Do you agree with Brad’s idea? Explain. 2. Brad has stocks that are worth about $4,000. Their value has not changed much since he purchased them a few years ago. Brad would like to buy more stock, but doing so would limit the amount of cash that he has for other purposes and would require him to put more of his monthly purchases on his credit card. A stock broker told Brad that these stocks could earn a return of 8% per year, and Brad wants to capitalize on the high return, even if it means that he has to increase his balance on his credit card in order to buy the stock. Do you agree with Brad’s idea? Explain. 3. In addition to the credit card debt, Brad also still has a car loan on which he is paying 7% interest. If Brad is able to save some money in the near future, he would like to pay off the car loan first, and then he will focus on paying off the credit card balance. Do you agree with Brad’s idea? Explain. 4. Should Brad sell the stock that he presently owns in order to pay down his credit card debt? Personal Finance by Jeff Madura Name: Date: Brad Brooks—A Continuing Case Part 3: Pesonal Financing Your friend Brad Brooks now has the urge to upgrade his car and housing situations, and he needs your guidance. 1. Brad is interested in purchasing an SUV for $35,000. He has found a buyer who will pay him $15,000 cash for his existing car. This would enable him to pay off his current car loan (loan balance on his existing car is presently $10,000) and still have $5,000 for a down payment on the SUV. He would finance the remaining $30,000 of the purchase price for four years at 8%. a. Search for “car loan payment calculator” on the Internet, and use the calculator (or use your own calculator) to determine Brad’s monthly payment if he buys the SUV. By how much would his monthly car payment increase if he purchases the SUV? b. Do you agree with Brad’s idea to buy the new SUV? Explain. 2. Brad realizes that he might be better off buying a small home instead of paying $2,000 per month rent. He has noticed that a townhome not far from his workplace is for sale for $200,000. A financial institution would provide Brad with a mortgage so that he could buy the townhome under the conditions of a 10% down payment ($20,000), with a 30-year mortgage of $180,000 at a 5% interest rate. While he does not have the down payment at this time, he still wants to consider what his monthly mortgage payment would be. a. Help Brad by accessing a mortgage calculator on the Internet (use the search term “mortgage calculator”) and determine what his monthly payment would be. How much would Brad save per month by having the mortgage instead of paying rent? (Ignore some other costs of home ownership such as closing costs, property taxes, and home insurance.) b. Do you think Brad should consider purchasing a home now (assuming that he is able to borrow funds from a family member to make the down payment)? Personal Finance by Jeff Madura Name: Date: Brad Brooks—A Continuing Case Part 4: Protecting Your Wealth Your friend Brad Brooks tells you about his plans to upgrade his auto insurance. Specifically, he would like to add several types of coverage to his policy, such as uninsured motorist coverage and rental car coverage. Recall that Brad is 30 years old. His driving record includes several speeding tickets and two accidents (one of which he caused). He realizes that adding coverage will increase the cost of his insurance. Therefore, he is thinking about switching insurance companies to a more inexpensive insurance company. 1. Regarding Brad’s auto insurance decision, comment on the following: a. His plan to add different types of coverage to his auto insurance policy b. The associated costs of adding different types of coverage to his auto insurance policy c. Any possible negative consequences of switching to a more inexpensive auto insurance company d. The importance of the credit rating of an insurance company 2. Brad says that he is generally happy with the HMO insurance plan he has through the technology company where he works. However, Brad mentions that he does not particularly like to see his primary care physician each time he requires a consultation with a specialist. He tells you that his company also offers a PPO, but that he did not choose that plan because he knows little about it. Describe to Brad how he could benefit from a PPO. Are there any negative factors Brad needs to know about if he seriously considers switching to a PPO? 3. Brad is trying to decide between term life insurance and whole life insurance. He likes whole life insurance, as he believes that the loan feature on that policy will give him an option for meeting his liquidity needs. Concerning Brad’s life insurance decision, comment on the following: a. Does Brad need life insurance? b. Brad was told by a life insurance agent that he should consider whole life insurance because it can serve as an investment that can grow over time. c. The insurance agent told Brad that a whole life policy’s loan feature is a means for maintaining liquidity. Personal Finance by Jeff Madura Name: Date: Brad Brooks—A Continuing Case Part 5: Personal Investing As a result of watching a financial news network on cable, reading articles in some business magazines, and listening to a coworker tell how her portfolio doubled in value in six months, Brad is now convinced that his financial future lies in the stock market. 1. Comment on Brad’s opinions below: a. Brad thinks that buying different technology stocks would be a sufficient method of diversification. b. Brad recognizes his lack of knowledge about mutual funds or other investments, and for this reason, he decides he should focus his future investments only in stocks. c. Brad wants to use margin trading in the future when investing in stocks because it can magnify the return from investing. d. Brad’s choice of stocks to invest in will likely be based on hot tips that he hears on television. 2. Given Brad’s lack of knowledge of investing and his limited time to learn or do research, what might be the best option for Brad to pursue and still get the benefit of the potential growth in the technology sector? 3. Explain to Brad why misleading financial statements may be more common than he believes and why misleading financial statements can negatively affect a stock’s price. Personal Finance by Jeff Madura Name: Date: Brad Brooks—A Continuing Case Part 6: Retirement and Estate Planning Your friend Brad Brooks wants your guidance on his latest retirement plans. Although he is only 30 years old, he says he is now determined to consistently save a portion of his paycheck so that he can retire early. 1. With regard to Brad’s revised retirement plans: a. How much will he have in 30 years if he invests $3,600 per year at 8%? Future Value of an Annuity Payment per year Number of years Annual interest rate Future Value $0.00 b. Brad believes that if he accumulates $500,000 in his retirement account in 20 years, that should easily be sufficient to retire. How much will he have to save per year at 8% to accumulate $500,000 in 20 years? Amount to be Accumulated Number of Years Annual Interest Rate Annual Deposit #VALUE! Note: The deposit is negative since it is a cash outflow. c. Brad also considers that he might not be able to save enough per year to meet his $500,000 savings goal in 20 years. So he also wants to consider how much he must save per year at 8% to accumulate $500,000 in 30 years. How much will he have to save per year at 8% to accumulate $500,000 in 30 years? Amount to be Accumulated $500,000 Number of Years 30 Annual Interest Rate 8.00% Annual Deposit ($4,413.72) Note: The payment is negative since it is a cash outflow. d. Brad presumes that his retirement savings will earn a return of 8% per year over a long period of time. Do you think this presumed return is realistic? If the presumed return is higher than the return that actually occurs, how would that affect the actual value of the retirement account at the time Brad hopes to retire? e. Brad is hoping to retire in 20 years so that he can travel the world and enjoy life (with entertainment etc.) even more than he does now, which means that he would likely spend as much money during retirement as he does now (assume that he now spends about $50,000 per year). Do you think Brad can afford to retire in 20 years if he actually does accumulate $500,000 by that time? f. Assume that Brad’s employer is willing to match Brad’s retirement contribution up to $300 per month ($3,600 per year) so that the total contribution to Brad’s retirement account would be $7,200 per year. How would this affect his total savings in his retirement account in 20 years and in 30 years if he could earn a return of 8%? Future Value of an Annuity Payment per year Number of years Annual interest rate Future Value 20 Years $0 20 0% $0.00 30 Years $0 30 0% $0.00 Personal Finance by Jeff Madura 69

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