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Personal Financial Planning 15th Edition Randy Billingsley, Lawrence J. Gitman, Michael D. Joehnk - Solutions
Silas and Camila Sims have two children, with ages of 6 years and 5 months. Their younger child, Julian, was born with a congenital heart defect that will require several major surgeries in the next few years to correct fully. Silas is employed as a salesperson for a major pharmaceutical firm, and
Valeria and Matias Rivera have been married for two years and have a 1-year-old son. They live in Richmond, Virginia, where Matias works for Software Solutions. He earns $6,000 per month, of which he takes home $4,200. Matias and his family are entitled to receive the benefits provided by the
Oscar Wang 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, $4,300 in physician’s fees (including time in the hospital and eight follow-up office visits), $520
Thea Morris, a recent college graduate, has decided to accept a job offer from a nonprofit organization. She’ll earn $45,000 a year but will receive no employee health benefits. Thea estimates that her monthly living expenses will be about $2,000 a month, including rent, food, transportation, and
Describe these policy provisions commonly found in medical expense plans: (a) Deductibles,(b) Co-insurance, and(c) Coordination of benefits.
Describe the differences among long-term-care policies regarding:(a) Type of care.(b) Eligibility requirements, and(c) Services covered. List and discuss some other important policy provisions.
Assume that Savannah Stone had a homeowner’s insurance policy with $200,000 of coverage on the dwelling. Would a 90 percent co-insurance clause be better than an 80 percent clause in such a policy? Give reasons to support your answer.
Levi and Riley Scott, ages 30 and 28, were recently married in Denver. Levi is an electrical engineer with Bright Solutions, a computer component design firm. Riley has a master’s degree in education and teaches at a local middle school. After living in an apartment for six months, the Scotts
Last year, Eleanor and Felix Knight bought a home with a dwelling replacement value of $350,000 and insured it (via an HO-5 policy) for $310,000. The policy reimburses for actual cash value and has a $500 deductible, standard limits for coverage C items, and no scheduled property. Recently,
Javier Perez is a 40-year-old loan officer at a large regional 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 Saturday afternoon Javier visits Unique Motors and buys a new car for $32,000. To obtain insurance on the car, Javier calls his
Ivy Gordon’s home in Charleston was recently gutted in a fire. Her living and dining rooms were destroyed completely, and the damaged personal property had a replacement price of $32,000. The average age of the damaged personal property was 5 years, and its useful life was estimated to be 15
Describe how the co-insurance feature works.
Use Worksheet 11.1 Ashley Olson is early in her career and is now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the people she works with, she would really like to be a literary agent. She would like to go on her own in about 8 years
Jane and Leo Daniels, both graduate students, moved into an apartment near the university. Jane wants to buy renter’s insurance, but Leo thinks that they don’t need it because their furniture isn’t worth much. Jane points out that, among other things, they have some expensive computer and
Personal automobile policy coverage. Finn Stone has a 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 deductible for collision insurance. How much will his insurance cover in each of the following
Scarlett and Damon Mitchell are a high-net-worth couple. They have appropriate auto and homeowner’s insurance but are concerned that they could be sued by someone visiting or working at their home. What type of supplemental insurance might be appropriate for the Mitchell family in light of their
Dexter and Hannah Roberts recently went out for dinner on a rainy night. When the traffic unexpectedly slowed down, they were rear-ended by an inexperienced driver. Describe what steps the Roberts family should have taken after the accident to assure that their auto insurance claim would be settled
Like many married couples, Morgan and Thomas Jensen are trying their best to save for two important investment objectives: (1) an education fund to put their two children through college; and (2) a retirement nest egg for themselves. They want to set aside $100,000 per child by the time each one
Martin Moreno is 42 years old, single, and works as a designer for a major architectural firm. He is well paid and over time has built up a sizable portfolio of investments. He considers himself an aggressive investor and, because he has no dependents to worry about, likes to invest in
Suppose Ryan Cunningham places an order to buy 100 shares of The Gap. 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.
Elizabeth Greene wants to buy 300 shares of Google, which is selling in the market for $537.34 a share. Rather than liquidate all her savings, she decides to borrow through her broker at 5 percent a year. Assume that the margin requirement on common stock is 50 percent. If the stock rises to $625 a
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 stock at $60 without margin and sell it a year later at $90.b. Buy a stock at $20 with 50 percent
Given that Local Care, Inc.’s stock is currently selling for $40 a share, calculate the amount of money that Elijah Pearson will make (or lose) on each of the following transactions. Assume all transactions involve 100 shares of stock, and ignore brokerage commissions.a. He short-sells the stock
How much profit (if any) would Roberto Chavez make if he short sold 300 shares of a stock at $100 a share and the price of the stock suddenly tumbled to $70?
The following quote for The Walt Disney Company, a NYSE stock, appeared on November 8, 2019 (Friday) on Yahoo! Finance ((https://finance.yahoo.com/quote/DIS?p=DIS&.tsrc=fin-srch).The Walt Disney Company (DIS) – NYSE 137.96 +5.00 (+3.76%)Given this information, answer the following
Use Worksheet 11.2 to help Destiny and Robert Payne, a married couple in their late 40s, evaluate their securities portfolio, which includes these holdings.a. IBM. (NYSE; symbol IBM): 100 shares bought in 2011 for $170.40 per share.b. Verizon (NYSE; symbol VZ): 250 shares purchased in 2007 for
Describe how the return on an investment is calculated.
Cora Hamilton recently graduated from college and moved to Charlotte to take a job as a market research analyst. She was pleased to be financially independent and was sure that, with her $45,000 salary, she could cover her living expenses and have plenty of money left over to furnish her studio
Ashton and Melody Webb are a married couple in their mid-20s. Ashton has a good start as an electrical engineer and Melody works as a sales representative. Since their marriage four years ago, Ashton and Melody have been living comfortably. Their income has exceeded their expenses, and they have
During the Christmas break of his final year at the University of Florida (U of F), Aaron Barnes plans to put together his résumé in order to seek full-time employment as a software engineer during the spring semester. To help Aaron prepare for the job interview process, his older brother has
Cameron Foster, a 55-year-old retail store manager earning $85,000 a year, has worked for the same company during his entire 30-year career. Cameron was recently laid off and is still unemployed 10 months later, and his severance pay and 6 months’ unemployment compensation have run out. Because
Hudson Ross and Camila Cox are planning to get married in six months. Both are 30 years old and have been out of college for several years. Hudson uses three credit cards and has a bank account balance of $7,500 while Camila only uses one credit card and has $9,500 in her bank account. What
Brooklyn Hughes and Madison Powell, both freshmen and friends at a major university, are interested in going into a computer sciences career. While they're not just interested in the money they can make, they do want to have a sense of the compensation in that career.
Here is a portion of Joshua Sanders’s budget record for a recent month. Fill in the blanks in columns 5 and 6. Item (1) Rent Utilities Food Auto Recreation and Entertainment Amount Budgeted $550 150 510 75 100 Amount Beginning Spent Balance (3) $575 145 475 95 110 $50 15 -45 -25 -50 Monthly
Distinguish between long-term, intermediate, and short-term financial goals. Give examples of each.
Cooper Bryant’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 points below his expectations. Do you have any advice for Cooper?
Axel Gibson is preparing his balance sheet and income and expense statement for the year ending June 30, 2020. He is having difficulty classifying six items and asks for your help. Which, if any, of the following transactions are assets, liabilities, income, or expense items?a. Axel rents a house
Landon and Naomi Gray are preparing their cash budget. Help the Grays reconcile the following differences, giving reasons to support your answers. a. Their only source of income is Landon’s salary, which amounts to $5,000 a month before taxes. Landon wants to show the $5,000 as their monthly
Over the past several years, Natalie Howard has been able to save regularly. As a result, she has $54,188 in savings and investments today. She wants to establish her own business in 5 years and feels she will need $100,000 to do so.a. If she can earn 4 percent on her money, how much will her
Connor Ward wishes to have $800,000 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 percent on his investments, how much must Connor deposit today to create the retirement fund? If he can earn only 4 percent on
Calculating Marginal Tax Rates. Amelia Hall is single and received the following items and amounts of income during 2018. Determine the marginal tax rate applicable to each item. Note that if the item is not taxable, the marginal rate is 0. Salary Qualified dividends Gift from mother Child support
Jeremiah Wood 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 four years, $24,300 in five years, $26,000 in six years, and $28,000 in seven years. If he can put money into a fund that pays 4 percent interest, what lump-sum payment
The Garcia family has prepared their annual cash budget for 2021. They have divided it into 12 monthly budgets. Although only 1 monthly budget balances, they have managed to balance the overall budget for the year. What remedies are available to the Garcia family for meeting the monthly budget
Lucy Price 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 percent a year for the foreseeable future. Lucy is really curious how much money she can reasonably expect her investment to be
Inflation and interest rates. Lillian Coleman is 21 years old and has just graduated from college. In considering the retirement investing options available at her new job, she is thinking about the long-term effects of inflation. Help her by answering the following related questions: a.
What is compounding? Explain the rule of 72.
Explain how inflation affects the purchasing poser of money over time. What is the Fisher equation and how does it relate nominal and real interest rates to the expected rate of inflation?
Lillian and Jackson Clark are a married couple in their early 20s living in Los Angeles. Jackson Clark earned $93,000 in 2018 from his job as a sales assistant. During the year, his employer withheld $11,685 for income tax purposes. In addition, the Clarks received interest of $350 on a joint
Estimating Taxable Income, Tax Liability, and Potential Refund. Charlotte Taylor is 24 years old and single, lives in an apartment, and has no dependents. Last year, she earned $55,000 as a sales assistant for Office Furniture Rentals, and $6,910 of her wages were withheld for federal income taxes.
Julian Thomas, who is single, goes to graduate school part-time and works as a waiter at the Bay Grill in San Francisco. During 2018, his gross income was $20,700 in wages and tips. He has decided to prepare his own tax return because he cannot afford the services of a tax expert. After preparing
If Isabella Rodriguez is single and in the 24 percent tax bracket, calculate the tax associated with each of the following transactions. (Use the IRS regulations for capital gains in effect in 2018.)a. She sold stock for $1,200 that she purchased for $1,000 5 months earlier.b. She sold bonds for
Effect of Tax Credit versus Tax Exemption. Explain and calculate the differences resulting from a $2,000 tax credit versus a $2,000 tax deduction for a single taxpayer with $40,000 of pre-tax income.
Calculating Taxable Income for a Married Couple Filing Jointly. Emily and Luke Robinson are married and have one child. Luke is putting together some figures so that he can prepare the Robinsons’ joint 2018 tax return. So far, he’s been able to determine the following concerning income and
Preparing for a Tax Audit. John and Evelyn Harris have been notified that they are being audited. What should they do to prepare for the audit?
Lian Chen is a registered nurse who earns $3,250 per month after taxes. She has been reviewing her savings strategies and current banking arrangements to determine if she should make any changes. Lian has a regular checking account that charges her a flat fee per month, writes an average of 18
Vivian and Rowen Wells are college students who opened their first joint checking account at the American Bank on September 14, 2020. They’ve just received their first bank statement for the period ending October 5, 2015.1. From this information, prepare a bank reconciliation for the Wells
Nicolas Cruz has a NOW account at the Second National Bank. His checkbook ledger lists the following checks:Nicolas also made the following withdrawals and deposits at an ATM near his home:Nicolas’s checkbook ledger shows an ending balance of $286.54. He has just received his bank statement for
Determining the right amount of short-term, liquid investments. Evan and Sara Myers together earn approximately $82,000 a year after taxes. Through an inheritance and some wise investing, they also have an investment portfolio with a value of almost $150,000.a. How much of their annual income do
Define and discuss (a) Demand deposits, (b) Time deposits, (c) Interest-paying checking accounts.
Describe some of the short-term investment vehicles that can be used to manage your cash resources. What would you focus on if you were concerned that inflation will increase significantly in the future?Short-term is generally understood to be less than a year. Given this short period the
Sarah and Tyler Hudson, a dual-income couple in their late 20s, want to replace their 7-year-old car, which has 90,000 miles on it and needs some expensive repairs. After reviewing their budget, the Hudson’s conclude that they can afford auto payments of not more than $450 per month and a down
Alexis Martin has just graduated from college and needs to buy a car to commute to work. She estimates that she can afford to pay about $450 per month for a loan or lease and has about $2,000 in savings to use for a down payment. Develop a plan to guide her through her first car-buying experience,
Aramis and Danielle Bisset, both in their mid-20s, have been married for 4 years and have two preschool-age children. Ben has an accounting degree and is employed as a cost accountant at an annual salary of $62,000. They’re now renting a duplex but wish to buy a home in the suburbs of their
Gavin Anderson is trying to decide whether to lease or purchase a new car costing $18,000. If he leases, he’ll have to pay a $600 security deposit and monthly payments of $425 over the 36-month term of the closed-end lease. On the other hand, if he buys the car then he’ll have to make a
Natalie Warren is in her late 20s. She is renting an apartment in the fashionable part of town for $1,500 a month. After much thought, she’s seriously considering buying a condominium for $325,000. She intends to put 20 percent down and expects that closing costs will amount to another $6,500; a
Kayla Thompson is married and currently renting an apartment for $725 per month and paying $275 annually for renter’s insurance. Her landlord required a $1,000 security deposit on the apartment. She just found a small townhouse that she can buy for $285,000. She has enough cash for a
Determining maximum affordable mortgage payment. Using the maximum ratios for a conventional mortgage, how big a monthly payment could the Sanchez family afford if their gross (before-tax) monthly income amounted to $4,000? Would it make any difference if they were already making monthly
Rachel and Alexander Harrison need to calculate the amount that they can afford to spend on their first home. They have a combined annual income of $67,500 and have $37,000 available for a down payment and closing costs. The Harrisons estimate that homeowner’s insurance and property taxes will be
Jia Ma purchased a condominium 4 years ago for $180,000, paying $1,250 per month on her $162,000, 8 percent, 25-year mortgage. The current loan balance is $152,401. Recently, interest rates have dropped sharply, causing Jia to consider refinancing her condo at the prevailing rate of 5 percent. She
After graduating from college last fall, Jennifer Grant took a job as a consumer credit analyst at a local bank. From her work reviewing credit applications, she realizes that she should begin establishing her own credit history. Describe for Jennifer several steps that she could take to begin
Luis and Elena Gonzales are a newly married couple in their mid-20s. Luis is a senior at a state university and expects to graduate in the summer of 2021. Elena graduated last spring with a degree in marketing and recently started working as a sales rep for the Media Focus Corporation. She supports
Evaluating debt burden. Kevin Mills has a monthly take-home pay of $3,865; he makes payments of $410 a month on his outstanding consumer credit (excluding the mortgage on his home). How would you characterize Kevin’s debt burden? What if his take-home pay was $850 a month and he had monthly
A year after declaring bankruptcy and moving with her daughter into a home with her sister, Molly Graham is about to get a degree in nursing. As she starts out in a new career, she also wants to begin a new life—one built on a solid financial base. Molly will be starting out as a full-time nurse
Use Worksheet 6.1. Katherine Hunt is evaluating her debt safety ratio. Her monthly take- home pay is $3,320. Each month, she pays $380 for an auto loan, $120 on a personal line of credit, $60 on a department store charge card, and $85 on her bank credit card. Complete Worksheet 6.1 by listing
Isaiah and Allison Burton have a home with an appraised value of $180,000 and a mortgage balance of only $90,000. Given that an S&L is willing to lend money at a loan to-value ratio of 75 percent, how big of a home equity credit line can Isaiah and Allison obtain? How much, if any, of this line
Joseph Simpson, a student at State College, has an average balance of $380 on his retail charge card; if the store levies a finance charge of 21 percent per year, how much monthly interest will be added to his account?
Justin Nichols recently graduated from college and is evaluating two credit cards. Card A has an annual fee of $75 and an interest rate of 9 percent. Card B has no annual fee and an interest rate of 16 percent. Assuming that Justin intends to carry no balance and to pay off his charges in full each
Calculating credit card finance charge. Blake Miller recently received his monthly MasterCard bill for the period June 1–30, 2021, and wants to verify the monthly finance charge calculation, which is assessed at a rate of 15 percent per year and based on ADBs, including new purchases. His
Camila Martinez has several credit cards, on which she is carrying a total current balance of $14,500. She is considering transferring this balance to a new card issued by a local bank. The bank advertises that, for a 2 percent fee, she can transfer her balance to a card that charges a 0 percent
Comparing credit and debit cards. Caden Walker is trying to decide whether to apply for a credit card or a debit card. He has $8,500 in a savings account at the bank and spends his money frugally. What advice would you have for Caden? Describe the benefits and drawbacks of each type of card.
Credit card liability. Cheryl Lee was reviewing her credit card statement and noticed several charges that didn’t look familiar to her. Cheryl is unsure whether she should pay the bill in full and forget about the unfamiliar charges, or “make some noise”. If some of these charges
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