FIN 564 Midterm

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(TCO A) Jean and Jim have liquid assets of $3,600 and other assets of $42,800. Their total liabilities equal $26,000. What is their net worth? (Show all work.)

(TCO A) Construct a balance sheet from the following information. Be sure the format is correct. (Show all work.)

(TCO A) The following questions are worth 5 points each. Please show all work.

a. Inflation is expected to average 5% for the long term and Mr. Smith earned $74,000 this year, how much must he earn in 20 years just to keep up with inflation and maintain the balance between his income and his increasing expenditures?
b. Jamie wants to have $2,000,000 for her retirement in 35 years. How much should she save annually if she thinks she can earn 8% on her investments?
c. The Flemings will need $160,000 annually for 30 years during retirement. How much will they need at retirement if they can earn a 4% rate of return?
d. The Hamptons want to have $2,500,000 for their retirement in 30 years. How much should they save annually if they think they can earn 7% on their investments?

(TCO B) From the information given below, determine Mary’s gross income for tax purposes.

Salary                                                                      $32,000
Interest (checking account)                                              $25
Cash received as birthday gift                                       $1,000
Dividends (mutual funds)                                              $5,500
Alimony payments received from ex-spouse                 $24,000
Life insurance benefits received from aunt’s death          $50,000

(TCO B) George has the following expenses that he wants to include as itemized deductions for the year. His adjusted gross income is $60,000. What is the total itemized deduction he can take? (Show all work.)

Medical expenses                $4,500
Home mortgage interest         8,000
Credit card interest                   450
Charitable contributions          1,500
State property taxes               2,400
Job-related expenses             1,900

(TCO C) Maggie wants to open a checking account that will be the least expensive given her normal financial transactions. She typically writes 15 checks a month and uses an ATM 35 times a month. Her minimum checking balance falls to about $350 in an average month. Which of the following accounts would be least expensive for Maggie? (Show all your work.)

(TCO C) Greg has negotiated a $20,000 price on a new pick-up truck. The manufacturer is offering a $1,500 rebate, or 3.9%, three-year financing. Greg is also able to get 7%, three-year financing at his credit union. If Greg plans to finance $18,000 over three years, should he take the rebate or the 3.9% financing? (Show all work.)

(TCO C) Chris and Karen have a combined take-home income of $5,000. Their total monthly payments on consumer debt are $875. What is their debt safety ratio? Are they exhibiting any sign of approaching credit problems?

(TCO C ) Jamie is going to buy some furniture with a single payment loan that is discounted. The loan will be for $5,000 for two years at 10% interest. Calculate the APR on this loan. (Show all work.)