Questions and Answers of Personal Financial Planning

Greg and Tanya Ridpath have two children, ages 6 years and 5 months. Their younger child, Ray, was born with a congenital heart defect that will require several major surgeries in the next few years
Michael Cheung was seriously injured in a snowboarding accident that broke both his legs and an arm. His medical expenses included five days of hospitalization at $900 a day, $6,200 in surgical fees,
Use Worksheet 9.1. Jessica Waverly, a recent college graduate, has decided to accept a job offer from a nonprofit organization. She’ll earn $34,000 a year but will receive no employee health
Brad Rowe was a self-employed window washer earning approximately $700 per week. One day, while cleaning windows on the eighth floor of the First National Bank Building, he tripped and fell from the
Juan Espinoza and his wife, Isabel, have been married for 2 years and have a 1-year-old son. They live in Chicago, where Juan works for Mechanical Solutions Company. He earns $3,200 per month, of
Assume Donna Thurman had a homeowner’s insurance policy with $100,000 of coverage on the dwelling. Would a 90% co-insurance clause be better than an 80% clause in such a policy? Give reasons to
Last year Charles and Kathy Price bought a home with a dwelling replacement value of $250,000 and insured it (via an HO-3 policy) for $210,000. The policy reimburses for actual cash value and has a
Angela Leichner’s luxurious home in Georgetown, a neighborhood in Washington, DC, was recently gutted in a fire. Her living and dining rooms were completely destroyed, and the damaged personal
Steve and Brenda Edwards, both graduate students, moved into an apartment near the university. Brenda wants to buy renter’s insurance, but Steve thinks they don’t need it because their furniture
Alex Evans has a personal automobile policy (PAP) with coverage of $25,000/$50,000 for bodily injury liability, $25,000 for property damage liability, $5,000 for medical payments, and a $500
Miguel and Juliana Santiago, ages 30 and 28, were recently married in Dallas. Miguel is an electrical engineer with Silicon Systems, a computer component design firm. Juliana has a master’s degree
Rob Worley of Richmond, Virginia, is a divorced 40-year-old loan officer at the Dominion Bank; he has a 16-year-old son. He has decided to use his annual bonus as a down payment on a new car. One
What is the difference between the broker and dealer markets?
Use Worksheet 11.1 Ashley Corwin is a young career woman who’s now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the people she works
Suppose Arthur Kessel places an order to buy 100 shares of Google. Explain how the order will be processed if it’s a market order. Would it make any difference if it had been a limit order? Explain.
Felicity Hamilton wants to buy 300 shares of General Electric, which is currently selling in the market for $12.32 a share. Rather than liquidate all her savings, she decides to borrow through her
Which of the following would offer the best return on investment? Assume that you buy $5,000 in stock in all three cases, and ignore interest and transaction costs in all your calculations.a. Buy a
How much profit (if any) would William Anderson make if he short-sold 300 shares of stock at $75 a share and the price of the stock suddenly tumbled to $60?
Given that Creative Systems Inc.’s stock is currently selling for $50 a share, calculate the amount of money that Alister Cooper will make (or lose) on each of the following transactions. Assume
Why do you suppose that large, well-known companies such as Oracle, Starbucks, and Nextel prefer to have their shares traded on the NASDAQ rather than on one of the major listed exchanges, such as
Using a resource like The Wall Street Journal or Barron’s (either in print or online), find the latest values for each of the following market averages and indexes, and indicate how each has
Using the stock quotations in Exhibit 11.5, find the 52-week high and low for Nucor’s common. What is the stock’s latest dividend yield? What was Nucor’s closing price, and at what P/E ratio
Use Worksheet 11.2 to help Becky and Travis Hoffmeister, a married couple in their early 30s, evaluate their securities portfolio, which includes these holdings.a. Walt Disney Co. (NYSE; symbol,
What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected returns.a. Buy a stock for $45 a share,
Selected financial information about Premium Brands, Inc., is as follows: Using the company’s financial information, compute the following:a. The stock’s dividend yieldb. Book value per
Assume that you’ve just inherited $350,000 and have decided to invest a big chunk of it ($250,000, to be exact) in common stocks. Your objective is to build up as much capital as you can over the
Discuss the evidence regarding the ability of most investors to effectively time getting in and out of the stock market. How sensitive are returns to being out of the market for just a few days of
An investor is thinking about buying some shares of Financial Concepts, Inc., at $60 a share. She expects the price of the stock to rise to $100 a share over the next 3 years. During that time, she
The Medical Benefits Management Company recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of $1 million a
The price of YouRus is now $65. The company pays no dividends. Mr. Milton Rapier expects the price 4 years from now to be $105 a share. Should Mr. Rapier buy YouRus if he desires a 15% rate of
Which of these three bonds offers the highest current yield? Which one has the highest yield to maturity?a. A 9.5%, 20-year bond quoted at 97.750b. A 16%, 15-year bond quoted at 164.625c. A 5.25%,
Find the current yield of a 10%, 25-year bond that’s currently priced in the market at $1,250. Now, use a financial calculator to find the yield to maturity on this bond (use annual compounding).
Kristin Earhardt is a 26-year-old management trainee at a large chemical company. She is single and has no plans for marriage. Her annual salary is $34,000 (placing her in the 15% tax bracket), and
Imagine that you’ve just inherited $20,000 from a rich uncle. Now you’re faced with the problem of deciding how to spend it. You could make a down payment on a condo—or better yet, on that
About a year ago, Chris Beattie bought some shares in the Stratosphere Mutual Fund. He bought the stock at $24.50 a share, and it now trades at $26.00. Last year the fund paid dividends of 40 cents a
Here is the per-share performance record of the West Coast Growth-and-Income fund for 2010 and 2009:Use this information to find the rate of return earned on this fund in 2009 and in 2010. What is
Paloma Ortiz is thinking about investing in some residential income-producing property that she can purchase for $200,000. Paloma can either pay cash for the full amount of the property or put up
Using the Find a REIT section of the Invest in REITs Web site, http://www.investinreits.com/ findaREIT/findareit.cfm, select two publicly traded real estate investment trusts in different property
Using Yahoo! Finance or another investor information portal, find three real estate–related stocks. Evaluate them as potential additions to your portfolio. Do you think they provide the same degree
Ray Sutton has worked in the management services division of Strategic Consultants for the past 5 years. He currently earns an annual salary of about $95,000. At 33, he’s still a bachelor and has
Jennifer Hollins is the director of a major charitable organization in Lexington, Kentucky. A single mother of one young child, she earns what could best be described as a modest income. Because
Shawn Burton, a 25-year-old personal loan officer at Second State Bank, understands the importance of starting early when it comes to saving for retirement. She has designated $3,000 per year for her
Use Exhibit 14.3 to determine the amount of Social Security retirement benefits that Henry Underwood would receive annually if he had a high (i.e., “maximum”) level of career earnings, is age 62,
Nancy Gibson has just graduated from college and is considering job offers from two companies. Although the salary and insurance benefits are similar, the retirement programs are not. One firm offers
Christopher Huang is an operations manager for a large manufacturer. He earned $68,500 in 2009 and plans to contribute the maximum allowed to the firm’s 401(k) plan. Assuming that Christopher is in
Use Worksheet 14.1 to assist Sandra Rorrer with her retirement planning needs. She plans to retire in 15 years, and her current household expenditures run about $50,000 per year. Sandra estimates
Barbara Worrell and Rita Young are neighbors in Denver. Barbara works as a software engineer for Creative Games Corporation, a computer game company, while Rita works as an executive for United
Chris and James Simon are in their mid-30s and have two children, ages 8 and 5. They have combined annual income of $95,000 and own a house in joint tenancy with a market value of $310,000, on which
Michael Singleton, 48 and a widower, and Nicole Whitt, 44 and divorced, were married 5 years ago. There are children from their prior marriages, two children for Michael and one child for Nicole. The
In the late 1970s Andreas Jochem, originally from what is now the Republic of Slovenia, migrated to the United States, where he is now a citizen. A man of many talents and deep foresight, he has
Chris Matthew’s investments over the past several years have not lived up to his full return expectations. He is not particularly concerned, however, because his return is only about 2 percentage
Recommend three financial goals and related activities for someone in each of the following circumstances:a. Junior in collegeb. 25-year-old computer programmer who plans to earn an MBA
During the Christmas break of his final year at Ohio State, Bill Bledsoe plans to put together his résumé in order to seek full-time employment as a medical technician during the spring semester.
Jonathan Lansing, a 47-year-old retail store manager earning $75,000 a year, has worked for the same company during his entire 28-year career. A major economic recession has caused massive layoffs
The McDonald family has prepared their annual cash budget for 2011. They have divided it into 12 monthly budgets. Although only one monthly budget balances, they have managed to balance the overall
Michael Vaughn is preparing his balance sheet and income and expense statement for the year ending June 30, 2010. He is having difficulty classifying six items and asks for your help. Which, if any,
Harvey and Marlyn Elliott are preparing their 2011 cash budget. Help the Elliotts reconcile the following differences, giving reasons to support your answers.a. Their only source of income is
Here is a portion of Rodney Rains’ budget record for April 2011. Fill in the blanks in columns 5 and 6. Monthly Cumulative Item Amount Budgeted Amount Beginning Surplus Surplus Spent Balance
Carl Wilfred wishes to have $400,000 in a retirement fund 20 years from now. He can create the retirement fund by making a single lump-sum deposit today.a. If he can earn 6% on his investments, how
Bill Long wants to set up a fund to pay for his daughter’s education. In order to pay her expenses, he will need $23,000 in 4 years, $24,300 in 5 years, $26,000 in 6 years, and $28,000 in 7 years.
Amy Stewart has always been interested in stocks. She has decided to invest $2,000 once every year into an equity mutual fund that is expected to produce a return of 6% a year for the foreseeable
Burt and Emily Gordon are a married couple in their mid-20s. Burt has a good start as a bank manager and Emily works as a sales representative. Since their marriage 4 years ago, Burt and Emily have
Use Worksheet 14.1 to assist Lindsay McCoy with her retirement planning needs. She plans to retire in 15 years, and her current household expenditures run about $50,000 per year. Lindsay estimates
Kimberly Bishop is thinking about investing in some residential income-producing property that she can purchase for $200,000. Kimberly can either pay cash for the full amount of the property or put
The price of Applied Adhesives, Inc., Inc. is now $85. The company pays no dividends. Adam Gardner expects the price 4 years from now to be $125 a share. Should Adam buy Applied Adhesives if he wants
The Alliance Company recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred dividends of $1 million a year. The
A company has total assets of $2.5 billion, total liabilities of $1.8 billion, and $200 million worth of 8 percent preferred stock outstanding. What is the firm’s total book value? What would its
An investor is thinking about buying some shares of Data Systems, Inc., at $75 a share. She expects the price of the stock to rise to $115 a share over the next 3 years. During that time, she also
Finding and interpreting stock quotes. Look at each of the following three pairs of stocks and select the security you’d like to own, given that you want to select the one with the highest market
Finding and using market index quotes. Using a resource like The Wall Street Journal or Barron’s (either in print or online), find the latest values for each of the following market averages and
Assume that an investor short-sells 500 shares of stock at a price of $65 a share, making a 50% margin deposit. A year later, she repurchases the borrowed shares at $45 a share.a. How much of her
Ariana and Nicholas Peterson are about to construct their income and expense statement for the year ending December 31, 2020. They have put together the following income and expense information for
Jocelyn Dixon needs to borrow $4,000. First State Bank will lend her the money for 12 months through a single payment loan at 8 percent, discount; Home Savings and Loan will make her a $4,000, single
Kaylee Holmes has an overdraft protection line. Assume that her October 2021 statement showed a latest (new) balance of $862. If the line had a minimum monthly payment requirement of 5 percent of the
Finding stock quote information. Using the Internet site for Yahoo! Finance (http://finance.yahoo.com), find the 52-week high and low for Coca-Cola’s common stock (symbol KO). What is the stock’s
Using the stock report find the following information for Apple.a. What was the amount of revenues (i.e., sales) generated by the company in 2018?b. What were the latest annual dividends per share
A couple in their early 30s, Leah and Eric Mathews recently inherited $90,000 from a relative. Eric earns a comfortable income as a sales manager for Atmospheric Instruments, Inc., and Leah does
Using the resources available on the internet, work the following problems.a. Select any two common stocks and then determine the dividend yield, EPS, and P/E ratio for each.b. Select any two bonds
An investor in the 32 percent tax bracket is trying to decide which of two bonds to select: one is a 5.5 percent U.S. Treasury bond selling at par; the other is a municipal bond with a 4.25 percent
Describe the dollar cost averaging strategy. Explain whether it is better to invest in a single lump sum or to spread the investment out over time.
Determine the annual Social Security benefit for Travis Burton, assuming that he is an “average” retiree. Travis is 66 years old, single, and earns $28,000 a year at a part-time job. (Travis is
Ryan Cook died in 2018, leaving an estate of $26 million. Ryan’s wife, Isabella, died in 2015. In 2013, Ryan gave his son, Aiden, property that resulted in a taxable gift of $3 million and upon
Santiago Hernandez’s was 65 when he retired in 2014. Maria, his wife of 40 years, passed away the next year. Her will left everything to Santiago. Although Maria’s estate was valued at
Chloe Parker has accumulated substantial wealth and plans to gift some of her wealth to her son, Jack. She is considering two assets: a beach house, which cost $300,000 twenty years ago and now has a
Nathan Cooper, a man of many talents and deep foresight, has built a large fleet of oceangoing oil tankers, now a wealthy man in his 60s, he resides in San Francisco, with his second wife, Audrey,
When Pablo Gonzalez died unmarried in 2018, he left an estate valued at $7,850,000. His trust directed distribution as follows: $20,000 to local hospital, $160,000 to his alma mater, and the
Explain these terms: (a) Intestacy (b) Testator. (c) Codicil. (d) Letter of last instructions.
Elijah Johnson, 48 and a widower, and Mila Turner, 44 and previously divorced, were married 5 years ago. There are children from their prior marriages, two children for Elijah and one child for Mila.
Zoe and William Hawkins are in their mid-30s and have two children, ages 8 and 5. They have combined annual income of $95,000 and own a house in joint tenancy with a market value of $410,000, on
Dustin Hansen is in his early 30s and is thinking about opening an IRA. He can’t decide whether to open a traditional/deductible IRA or a Roth IRA, so he turns to you for help. a. To support
Jared Nguyen is an operations manager for a large manufacturer. He earned $110,000 in 2019 and plans to contribute the maximum allowed to the firm’s 401(k) plan. Assuming that Jared is in the 24
Holly Richards has just graduated from college and is considering job offers from two companies. Although the salary and insurance benefits are similar, the retirement programs are not. One firm
Use Worksheet 14.1 to help Paul and Crystal Meyer, who’d like to retire in about 20 years. Both have promising careers, and both make good money. As a result, they’re willing to put aside
Using the mutual fund quotes in Exhibit 13.4, and assuming that you can buy these funds at their quoted NAVs, how much would you have to pay to buy each of the following funds? a. American
Kyle Watkins has worked in the management services division of Niche Consultants for the past 5 years. He currently earns an annual salary of about $120,000. At 33, he’s still a bachelor and has
Jada Wagner is the director of a major charitable organization in Savannah, Georgia. A single mother of one young child, she earns what could best be described as a modest income. Because charitable
Using a source like Barron’s, Forbes, Money, or Morningstar, along with any related Internet sites, select five mutual funds—a growth fund, an index fund, a sector fund, an international fund,
About a year ago, Eric Roberson bought some shares in the Diamond Mountain Mutual Fund. He bought the fund at $24.50 a share, and it now trades at $26. Last year, the fund paid dividends of 40 cents
A year ago, the Sequoia Growth Fund was being quoted at an NAV of $21.50 and an offer price of $23.35; today, it’s being quoted at $23.04 (NAV) and $25.04 (offer). Use the approximate yield formula
Here is the per-share performance record of the Stars Growth-and-Income fund for 2019 and 2020:Use this information to find the rate of return earned on this fund in 2019 and in 2020. What is your

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