Question: a Assume that their home is now appraised at

(a) Assume that their home is now appraised at $192,000 and the value of their automobile has dropped to $9500. Calculate and characterize the effects of these changes on their net worth and on their asset-to-debt ratio.
(b) If Victor and Maria take out a bank loan for $1545 and pay off their credit card debts totaling $1545, what effects would these changes have on their net worth?
(c) If Victor and Maria sell their New York 2028 bond and put the cash into the savings account, what effects would this have on their net worth and liquidity ratio?

Victor and Maria, both in their late 30s, have two children: John, age 13, and Joseph, age 15. Victor has had a long sales career with a major retail appliance store. Maria works part-time as a medical records assistant. The Hernandezes own two vehicles and their home, on which they have a mortgage. They will face many financial challenges over the next 20 years, as their children drive, go to college, and leave home and go out in the world on their own. Victor and Maria also recognize the need to further prepare for their retirement and the challenges of aging. Victor and Maria spent some time making up their first balance sheet, which is shown in Table 3-2. Victor and Maria are a bit confused about how various financial activities can affect their net worth.

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  • CreatedNovember 26, 2014
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