Questions and Answers of PFIN

Checking account reconciliation. Use Worksheet 4.1. Mateo Gonzalez has an interest-paying (NOW) checking account at the Second State Bank. His checkbook ledger lists the following checks:received his
Effective tax planning. Denise Hughes reports the following data from her 2018 tax return. Analyze the data and suggest tax planning ideas that she should consider. LO1 Salary Interest income
Choosing and preparing an individual tax form. Liam McKenzie is single, graduated from college in 2018 and began work as a systems analyst in July of that year. He is preparing to file his income tax
Calculating taxable income for a married couple filing jointly. Freya and Sebastian Hunter are married and have one child. Sebastian is putting together some figures so he can prepare the Hunters’
Calculating marginal tax rates. Lacey Hansen is single and received the items and amounts of income shown below during 2018, as shown below. Determine the marginal tax rate applicable to each item.
Preparing personal income and expense statement. Use Worksheet 2.2. Robyn and Matthew Scott are about to construct their income and expense statement for the year ending December 31, 2020. Robyn
Preparing personal balance sheet. Use Worksheet 2.1. Katie Wright’s banker has asked her to submit a personal balance sheet as of June 30, 2020, in support of an application for a $6,000 home
Calculating and comparing current yields.Which of these two bonds offers the highest current yield? Which one has the highest yield to maturity?a. A 6.55 percent, 22-year bond quoted at 52.000b. A
Calculating and interpreting current yield and yield to maturity. Describe and differentiate between a bond’s (a) current yield and (b) yield to maturity. Why are these yield measures important to
Tax treatment of bond returns. An investor in the 22 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
Calculating and interpreting current yield and yield to maturity. Find the current yield of a 5.65 percent, 8-year bond that’s currently priced in the market at $853.75. Now, use a financial
Choosing appropriate stocks. Assume that you’ve just inherited $500,000 and have decided to invest a big chunk of it ($350,000, to be exact)in common stocks. Your objective is to build up as much
Calculating key stock performance metrics.The Castle Company recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays preferred
Calculating expected return on a stock. The price of Outdoor Designs, Inc. is now $85. The company pays no dividends. Fred Gray expects the price four years from now to be $125 a share.Should Fred
Calculating expected return on an investment. An investor is thinking about buying some shares of Health Diagnostics, Inc., at$75 a share. She expects the price of the stock to rise to $115 a share
Ranking investments by expected returns.What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their expected
Distinguish between the different types of bonds, gain an understanding of how bond prices behave, and know how to compute different measures of yield. l01
Describe the basic issue characteristics of bonds as well as how these securities are used as investment vehicles. l01
Become familiar with the various measures of performance and how to use them in placing a value on stocks. l01
Discuss the merits of investing in common stock and be able to distinguish among the different types of stocks. l01
Know how to search for an acceptable investment on the basis of risk, total return, and yield. l01
Describe the various types of risks to which investors are exposed, as well as the sources of return. l01
CLE AN AN D D IRTY B ON D P RICE S. You have decided to sell a 5 percent semiannual coupon bond two months after the last coupon payment. The bond is currently selling for $951.25. Answer the
CALCU LATIN G AN D CO M P ARIN G CURRE N T Y IE LD S.Which of these two bonds offers the highest current yield? Which one has the highest yield to maturity?a. A 6.55 percent, 22-year bond quoted at
CALCU LATIN G AN D IN TE RP RE TIN G CU RRE N T Y I E LD AN D Y I E LD TO M ATU RI TY. Describe and differentiate between a bond’s (a) current yield and (b) yield to maturity. Why are these yield
TAX TRE ATM E N T O F B O N D RE TU RN S. An investor in the 28 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
CALCU LATIN G AN D IN TE RP RE TIN G CURRE N T Y IE LD AN D Y IE LD TO M ATURITY. Find the current yield of a 5.65 percent, 8-year bond that’s currently priced in the market at $853.75. Now, use a
CH O O S IN G AP P RO P RIATE STO C S. Assume that you’ve just inherited $500,000 and have decided to invest a big chunk of it ($350,000, to be exact)in common stocks. Your objective is to build up
CALCULATIN G E Y STO C P E RFORM AN CE M E TRICS.The Rivers Company recently reported net profits after taxes of $15.8 million. It has 2.5 million shares of common stock outstanding and pays
CALCU LATIN G E X P E CTE D RE TURN O N A STO C .The price of Landscapes, Inc. is now $85. The company pays no dividends. Troy Compton expects the price four years from now to be$125 a share. Should
CALCULATIN G E XP E CTE D RE TURN ON AN IN E STM E N T. An investor is thinking about buying some shares of Sporting Metrics, Inc., at $75 a share. She expects the price of the stock to rise to $115
RAN IN G IN E STM E N TS B Y E X P E CTE D RE TURN S.What makes for a good investment? Use the approximate yield formula or a financial calculator to rank the following investments according to their
Distinguish between the different types of bonds, gain an understanding of how bond prices behave, and know how to compute different measures of yield.. LO1
Describe the basic issue characteristics of bonds as well as how these securities are used as investment vehicles.. LO1
Become familiar with the various measures of performance and how to use them in placing a value on stocks.. LO1
Discuss the merits of investing in common stock and be able to distinguish among the different types of stocks.. LO1
Know how to search for an acceptable investment on the basis of risk, total return, and yield.. LO1
Describe the various types of risks to which investors are exposed, as well as the sources of return. LO1
Income and Education. Using Exhibit 1.8, discuss the relationship between annual income and the highest level of education completed.Provide specific examples of the difference between having no
Career Planning. Leo Johnson, a 52-yearold retail store manager earning $90,000 a year, worked for the same company during his entire 25-year career. Leo was laid off and is still unemployed 10
Career Choices and Financial Planning.Assume you graduated from college with a major in marketing and took a job with a large, consumer-products company. After three years, you are laid off when the
Effect of Age and Geography on Income.Evaluate the impact of age, and geographic location on personal income. KL01
Effects of Inflation. How does inflation affect interest rates, security prices, and financial planning? KL01
Impact of Economic Environment on Financial Planning. Summarize current and projected trends in the economy with regard to GDP growth, unemployment, and inflation.How should you use this information
Life Cycle of Financial Plans. Explain the life cycle of financial plans and their role in achieving your financial goals. KL01
Personal Financial Goals. Recommend three financial goals and related activities for someone in each of the following circumstances:a. A junior in collegeb. A 28-year-old computer programmer who
Personal Financial Goals and the Life Cycle.Use Worksheet 1.1. Fill out Worksheet 1.1,“Summary of Personal Financial Goals,” with goals reflecting your current situation and your expected life
Benefits of Personal Financial Planning.How can using personal financial planning tools help you improve your financial situation?Describe changes you can make in at least three areas. KL01
Understand the importance of career choices and their relationship to personal financial planning? KL01
Evaluate the impact of age, education, and geographic location on personal income. KL01
Examine the economic environment’s influence on personal financial planning. KL01
Explain the life cycle of financial plans, their role in achieving your financial goals, how to deal with special planning concerns, and the use of professional financial planners. KL01
Describe the personal financial planning process and define your goals. KL01
Refinancing a mortgage. Use Worksheet 5.4. Daisy Tran purchased a condominium ten years ago for $300,000, paying $1,439 per month on her $240,000, 6 percent, 30-year mortgage.The current loan balance
Adding to monthly mortgage payments.What are the pros and cons of adding $100 a month to your fixed-rate mortgage payment? L01
Using a real estate broker. Describe the ways in which a real estate broker represents buyers versus sellers. What’s a typical real estate commission? L01
Estimating closing costs on home purchase.How much might a home buyer expect to pay in closing costs on a $220,000 house with a 10 percent down payment? Her bank is offering 30-year mortgages at 5
Calculating monthly mortgage payments.Find the monthly mortgage payments on the following mortgage loans using either your calculator or the table in Exhibit 5.6:a. $90,000 at 6.5 percent for 30
Calculating required down payment on home purchase. How much would you have to put down on a house with an appraised value of $105,000 when the lender required an 80 percent loan-to-value ratio? L01
Changes in mortgage principal and interest over time. Explain how the composition of the principal and interest components of a fixed-rate mortgage change over the life of the mortgage. What are the
Maximum affordable mortgage payment.Using the maximum ratios for a conventional mortgage, how big a monthly payment could the Ross family afford if their gross (before-tax)monthly income amounted to
Rent versus buy home. Use Worksheet 5.2.Emma Sanchez is currently renting an apartment for $725 per month and paying $275 annually for renter’s insurance. She just found a small townhouse she can
Lease versus purchase car decision. Use Worksheet 5.1. Ben Hall 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
Planning a new car purchase. Anna Davis 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
Choose mortgage financing that meets your needs. L01
Describe the home-buying process. L01
Evaluate the benefits and costs of homeownership and estimate how much you can afford to pay for a home. L01
Identify housing alternatives, assess the rental option, and perform a rent-or-buy analysis. L01
Decide whether to buy or lease a car. L01
Design a plan to research and select a new or used automobile. L01
Recent estate tax developments and the need for estate planning. Summarize important recent legislation affecting estate taxes, and briefly describe the impact on estate planning. Explain why getting
Lifetime gifting strategy. Camila Ortiz has accumulated substantial wealth and plans to gift some of her wealth to her son Diego. She is considering two assets: a beach house, which cost $300,000
Calculation of estate taxes. Use Worksheet 15.1. When Jackson Holmes died in 2018, he left an estate valued at $15,850,000. His trust directed distribution as follows: $20,000 to the local
Trusts in estate planning. Frank Shaw 48, and Victoria Ferguson, 44, were married five years ago. They have children from their prior marriages, two children for Frank and one child for Victoria.
Topics in an ethical will. State the topics you would cover in your ethical will. Would you consider recording it digitally? P-89
Will and last letter preparation. Prepare a basic will for yourself, using the guidelines presented in the text; also prepare your brief letter of last instructions. Note that it is wisest to use an
Qualifications of estate executor. Your best friend has asked you to be executor of his estate.What qualifications do you need, and would you accept the responsibility? P-89
Importance of writing a will. Emilia and Kevin Boyd are in their mid-30s and have two children, ages 8 and 5. They have combined annual income of $150,000 and own a house in joint tenancy with a
Estate planning objectives. Generate a list of estate planning objectives that apply to your personal family situation. Be sure to consider the size of your potential estate as well as people
Use effective estate planning techniques to minimize estate taxes. P-89
Calculate federal taxes due on an estate. P-89
Determine whether a gift will be taxable, and use planned gifts to reduce estate taxes. P-89
Explain how trusts are used in estate planning. P-89
Recognize the importance of preparing a will and other documents to protect you and your estate. P-89
Describe the role of estate planning in personal financial planning, and identify the seven steps involved in the process. P-89
Fixed vs. variable annuities. What are the main differences between fixed and variable annuities? Which type is more appropriate for someone who is 60 years old and close to retirement? L01
Comparing variable annuities and mutual funds. Explain how buying a variable annuity is much like investing in a mutual fund. Do you, as a buyer, have any control over the amount of investment risk
Deciding whether to convert a traditional IRA to a Roth IRA. Explain the circumstances in which it make sense to convert a traditional IRA to a Roth IRA. L01
After-tax cost of 401(k) contribution.Luis Gomez is an operations manager for a large manufacturer. He earned $68,500 in 2018 and plans to contribute the maximum allowed to the firm’s 401(k) plan.
Comparing retirement plans. Millie Russell has just graduated from college and is considering job offers from two companies. Although the salary and insurance benefits are similar, the retirement
Retirement planning. At what age would you like to retire? Describe the type of lifestyle you envision—where you want to live, whether you want to work part-time, and so on. Discuss the steps you
Average Social Security benefits and taxes.Use Exhibit 14.2 to estimate the average Social Security benefits for a retired couple. Assume that one spouse has a part-time job that pays $24,000 a year,
Calculating annual investment to meet retirement goal. Use Worksheet 14.1 to help Georgia and Jude Sullivan determine how much they need to retire early in about 20 years. Both have promising
Calculating amount available at retirement. Molly Lincoln, a 25-year-old personal loan officer at First National Bank, understands the importance of starting early when it comes to saving for
Retirement planning pitfalls. Explain the three most common pitfalls in retirement planning. P=9
Choose the right type of annuity for your retirement plan. L01
Describe the various types of self-directed retirement plans. L01
Differentiate among the types of basic and supplemental employer-sponsored pension plans. L01
Explain the eligibility requirements and benefits of the Social Security program. L01
Estimate your income needs in retirement and the level of retirement income you’ve estimated from various sources. L01

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