Fin 235 Personal Finance Homework
Chapter 8: Problems: 1, 3, 5, 7
1. Most home insurance policies cover jewelry for $1,000 and silverware for $2,500 unless items are covered with additional insurance. If a family had $3,500 of jewelry and $3,800 of silverware stolen, what amount of the claim would not be covered by insurance?
3. What would it cost an insurance company to replace a family's personal property that originally cost $18,000? The replacement costs for the items have increased 15 percent.
5. For each of the following situations, what amount would the insurance company pay?
a. Wind damage of $785; the insured has $500 deductible.
b. Theft of a stereo system worth $1,300; the insured has a $250 deductible.
c. Vandalism that does $375 of damage to a home; the insured has a $500 deductible.
7. Kurt Simmons has 50/100/15 auto insurance coverage. One evening he lost control of his vehicle hitting a parked car and damaging a store front along the street. Damage to the parked car was $5,400 and damage to the store was $12,650. What amount will the insurance company pay for the damages? What amount will Kurt have to pay?
Chapter 9: Problems: 1, 3, 5, 9
1. The Kelleher family has health insurance coverage that pays 80 percent of out-of-hospital expenses after a $500 deductible per person. If one family member has doctor and prescription medication expenses of $1,100, what amount would the insurance pay?
3. Sarah's comprehensive major medical health insurance plan at work has a deductible of $750. The policy pays 85 percent of any amount above the deductible. While on a hiking trip, she contracted a rare bacterial disease. Her medical costs for treatment, including medicines, tests, and a six-day hospital stay, totaled $8,893. A friend told her that she would have paid less if she had a policy with a stop-loss feature that capped her out-of-pocket expenses at $3,000. Was her friend correct? Show your computations. Then determine which policy would have cost Sarah less and by how much?
5. Stephanie was involved in a car accident and was rushed to the emergency room. She received stitches for a facial wound and treatment for a broken finger. Under Stephanie's PPO plan, emergency room care at a network hospital is 80 percent covered after the member has met a $300 annual deductible. Assume that Stephanie went to a hospital within her PPO network. Her total emergency room bill was $850. What amount did Stephanie have to pay? What amount did the PPO cover?
What amount did Stephanie have to pay?
9. In 1999, Joelle spent $3,600 on her health care. If this amount increased by 5 percent per year, what would be the amount Joelle spent in 2009 for the same health care? (Hint: Use the Time Value of Money Table)
Chapter 10: Problems 1, 2, 6, 7
1. You are a wage earner in a "typical family," with $40,000 gross annual income. Use the easy method to determine how much insurance you should carry.
2. You and your spouse are in good health and have reasonably secure careers. Each of you makes about $28,000 annually. You own a home with an $80,000 mortgage, and you owe $10,000 on car loans, $5,000 on personal debts, and $3,000 on credit card loans. You have no other debt. You have no plans to increase the size of your family in the near future. Estimate your insurance needs using the DINK method.
6. Use Exhibit 10-1 to find the average number of additional years a 20-year-old male and female were expected to live, based on the statistics gathered by the U.S. government as of 2004 (Obj. 1)
7. Mark and Parveen are the parents of three young children. Mark is a store manager in a local supermarket. His gross salary is $65,000 per year. Parveen is a full time stay-at-home mom. Use the easy method to estimate the family's life insurance needs. (Obj. 1)
Questions:
- What is an Annuity?
- What are the Principal Types of Annuities?
- Why do People Buy Annuities?
Chapter 11: Problems 1, 2, 5, 9 Questions 1, 3, 8, 10
1. Jane and Bill Collins have total take-home pay of $3,900 a month. Their monthly expenses total $2,800. Calculate the minimum amount this couple needs to establish an emergency fund. (Obj. 1) (p. 351)
2. Using Exhibit 11-1, complete the following table. (Obj. 1) (p. 356)
|
Annual Deposit
|
Rate of Return
|
Number of Years
|
Investment Value at the End of Time Period
|
Total Amount of Investment
|
Total Amount of Interest
|
|
$2,000
|
3%
|
10
|
mce_markernbsp; 22,928
|
$20,000
|
mce_markernbsp; 2,928
|
|
$2,000
|
9%
|
10
|
mce_markernbsp; 30,386
|
$20,000
|
mce_markernbsp; 10,386
|
|
$2,000
|
5%
|
30
|
$132,878
|
$60,000
|
mce_markernbsp; 72,878
|
|
$2,000
|
11%
|
30
|
$398,040
|
$60,000
|
$338,040
|
5. Assume you are in the 35 percent tax bracket and purchase a 4.25 percent municipal bond. Use the formula presented in this chapter to calculate the taxable equivalent yield for this investment. (Obj. 4) (p. 367)
9. Assume that you purchased a $1,000 convertible corporate bond. Also assume the bond can be converted to 35.714 shares of the firm's stock. What is the dollar value that the stock must reach before investors would consider converting to common stock? (Obj. 5) (p. 370)
Questions 1, 3, 8, 10
1. After performing a financial checkup, you realize that you have too much credit card debt. What steps can you take to reduce the amount of money you owe on your credit cards? (Obj. 1)
3. Many people would like to start investing, but they never have enough money to begin. What steps can you take to get the money needed to start an investment program? (Obj. 1)
8. Assume that you are choosing an investment for your retired parents. Would you choose a bond issued by the federal government or a bond issued by a state or local government? Justify your answer. (Obj. 4)
10. Why would investors care if a bond is callable or not? (Obj. 5)
Chapter 12: Problems 1, 4, 6, 10, 15 Questions 3, 6, 8, 10
1. Jamie and Peter Dawson own 250 shares of IBM common stock. IBM's quarterly dividend is $0.50 per share. What is the amount of the dividend check the Dawson couple will receive for this quarter? (Obj.1)
4. Sarah and James Hernandez purchased 100 shares of Cisco Systems stock at $18.50 a share. One year later, they sold the stock for $26.35 a share. They paid a broker $32 commission when they purchased the stock and a $40 commission when they sold the stock. During the twelve month period they owned the stock, Cisco Systems paid no dividends. Calculate the Hernandez's total return for this investment. (Obj. 1)
6. Wallace Davis purchased 200 shares of Dell stock at $9.50 a share. One year later, he sold the stock for $8.42 a share. He paid his broker a $22 commission when he purchased the stock and a $24 commission when he sold it. During the 12 months he owned the stock, the company paid no dividends. Calculate Wallace's total return on this investment. (Obj. 1)
10. Analysts that follow JP Morgan Chase, one of the nation's largest providers of financial services, estimate that the corporation's earnings per share will increase from $1.78 in the current year to $2.93 next year. (Obj. 3)
a. What is the amount of the increase?
b. What effect, if any, should this increase have on the value of the corporation's stock?
15. After researching Valero Energy common stock, Sandra Pearson is convinced the stock is overpriced. She contacts her account executive and arranges to sell short 200 shares of Valero Energy. At the time of the sale, a share of common stock has a value of $25. Three months later, Valero Energy is selling for $16 a share, and Sandra instructs her broker to cover her short transaction. Total commissions to buy and sell the stock were $65. What is her profit for this short transaction? (Obj. 5)
Questions 3, 6, 8, 10
3. What is the difference between common and preferred stock? What type of investor would invest in preferred stock? (Obj. 1)
6. What is the difference between the dividend yield and total return calculations that were described in this chapter? (Obj. 3)
8. Explain the difference between a securities exchange and the over-the-counter market. (Obj. 4)
10. Today, you can use a full-service brokerage firm, a discount brokerage firm, or trade online to buy and sell stocks. Which type of brokerage firm would you use? Justify your answer. (Obj. 4)
Chapter 13: Problems 2, 4, 6, 14 Questions 2, 4, 6
2. The Western Capital Growth mutual fund has
Total assets, $750,000,000
Total liabilities, 7,200,000
Total number of shares, 24,000,000
What is the fund's net asset value (NAV)? (Obj. 1)
The net asset value per share is equal to the current market value of the mutual fund's portfolio minus the mutual fund's liabilities divided by the number of shares outstanding.
4. As Bill Salvatore approached retirement, he decided it was time to invest some of his nest egg in a conservative bond fund. He chose the American Century Municipal Bond fund. If he invests $80,000 and the fund charges a 4.50 percent load when shares are purchased, what is the amount of commission that Bill must pay? (Obj. 1)
6. Mike Jackson invested a total of $8,500 in the ABC Mutual Fund. The management fee for this particular fund is 0.70 percent of the total asset value. Calculate the management fee Mike must pay this year. (Obj. 1)
14. Over a three-year period, LaKeisha Thompson purchased shares in the Oakmark I Fund. Using the following information, answer the questions that follow. You may want to review the concept of dollar cost averaging in Chapter 12 before completing this problem. (Obj. 4)
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Year
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Investment Amount
|
Price Per Share
|
Number of Shares*
|
|
February 2007
|
$1,500
|
$45.80
|
32.75
|
|
February 2008
|
$1,500
|
$37.70
|
39.79
|
|
February 2009
|
$1,500
|
$23.30
|
64.38
|
*Carry your answer to 2 decimal places
a. At the end of three years, what is the total amount invested?
b. At the end of three years, what is the total number of shares purchased.
c. At the end of three years, what is the average cost for each share?
Questions 2, 4, 6
2. Describe the type of fees that you would pay to purchase a load fund. What annual fees would you typically pay for your mutual fund investment? (Obj. 1)
4. Choose either the Aim Charter (symbol CHTRX) mutual fund or the Fidelity Fifty (symbol FFTYX) mutual fund. Then describe how each source of information could help you evaluate one of these mutual funds. (Obj. 3)
a. The Internet
b. Professional advisory services
c. The fund's prospectus
d. The fund's annual report
e. Financial publications
f. Newspapers
6. Obtain a mutual fund prospectus to determine the options you can use to purchase and redeem shares. (Obj. 4)
a. Which of the purchase options would appeal to you? Why?
b. Assuming that you are now retirement age, which withdrawal options would appeal to you?
Chapter 14: Problems 1, 6, 9 Questions 2, 4
1. Shelly's assets include money in the checking and saving accounts, investments in stocks and mutual funds, personal property, such as furniture, appliances, an automobile, coin collection and jewelry. Shelly calculates that her total assets are $108,800. Her current unpaid bills, including an auto loan, credit card balances, and taxes total $16,300. Calculate Shelly's net worth. (Obj. 1)
6. Janine is 25 and has a good job at a biotechnology company. She currently has $5,000 in an IRA, an important part of her retirement nest egg. She believes her IRA will grow at an annual rate of 8 percent, and she plans to leave it untouched until she retires at age 65. Janine estimates that she will need $875,000 in her total retirement next egg by the time she is 65 in order to have retirement income of $20,000 a year (she expects that Social Security will pay her an additional $15,000 a year). (Obj. 2)
9. In 2009, Joshua gave $13,000 worth of Microsoft stock to his son. In 2010, the Microsoft shares are worth $23,000.
a. What was the gift tax in 2009? (Obj. 4)
b. What is the total amount removed from Joshua's estate in 2010?
c. What will be the gift tax in 2010?