Questions and Answers of PFIN

Recognize the importance of retirement planning, and identify the three biggest pitfalls to good planning. L01
Using insurance policy illustrations.Describe the key elements of an insurance policy illustration, and explain what a prospective client should focus on in evaluating an illustration. L01
Life insurance premiums and comparison of types. Using the premium schedules provided in Exhibits 8.2, 8.3, and 8.5, how much in annual premiums would a 25-year-old male have to pay for$100,000 of
Choosing among types of life insurance. Camila Rodriguez, a 38-year-old widowed mother of three children (ages 12, 10, and 4), works as a product analyst for a major consumer products
Appropriateness of variable life insurance. While at lunch with a group of coworkers, one of your friends mentions that he plans to buy a variable life insurance policy because it provides a good
Appropriateness of whole life insurance policy. Martha and Louis Mitchell are a dual-career couple who just had their first child. Louis, age 30, already has a group life insurance policy, but
Estimating life insurance needs.Use Worksheet 8.1. Sophie Lopez is a 72-year-old widow who has recently been diagnosed with Alzheimer’s disease. She has limited financial assets of her own and has
Deciding if additional life insurance is needed and, if so, appropriate type.Use Worksheet 8.1. Harvey Cook, 45, is a recently divorced father of two children, ages 10 and 7. He currently earns
Different ways to invest in real estate. Assume you’ve just inherited $100,000 and wish to use all or part of it to make a real estate investment.a. Would you invest directly in real estate, or
Investing in residential incomeproducing property. Leah Reyes is thinking about investing in residential income-producing property that she can purchase for $200,000. Leah can either pay cash for
Calculating mutual fund approximate rate of return. A year ago, the Constellation 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)
Calculating approximate yield on mutual fund. About a year ago, Elliot Cox bought some shares in the Axis Fund. He bought the fund at$24.50 a share, and it now trades at $26.00. Last year, the fund
Evaluating ETF performance. Do an online search for information on the PowerShares QQQ ETF. Discuss what information you need to evaluate the performance of the ETF, and use what you find to evaluate
Comparing ETF with SPDR. Describe an ETF and explain how it combines the characteristics of open- and closed-end funds. In the Vanguard family of funds, which would most closely resemble a
Choosing between a mutual fund and an ETF. Lilly Hughes is considering whether she should invest some extra money in a mutual fund or an ETF. Explain the key factors that should influence her
Identify the sources of return and calculate the rate of return earned on an investment in a mutual fund, as well as evaluate the performance of an exchange traded fund.
Differentiate between open- and closed-end mutual funds, as well as exchange traded funds, and discuss the various types of fund loads (commissions) and charges. L01
Protecting Against Identity Theft. Sienna Flores lives in a neighborhood where three of her friends have had their identities stolen in the last six months. She’s worried it will happen to her.
How to Improve FICO Score. Caleb Stewart had a FICO score of 620 when he learned that his neighbor, Bert Collins, has a FICO score of 750. While shopping for a new mortgage, Caleb learns that a new
Protecting against credit card fraud. Liam O’Sullivan takes pride in managing his finances carefully with great attention to detail. He recently received a phone call in which he was asked to
Credit card liability. Luna Phan was reviewing her credit card statement and noticed several charges that didn’t look familiar to her. Luna is unsure whether she should “make some noise,”or
Balance transfer credit cards. Zoe Robinson 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
Calculating credit card interest. Ruby Wilson, a student at State College, has a balance of $380 on her retail charge card. If the store levies a finance charge of 21 percent per year, how much
Choosing between credit cards. Gabriel Clark 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
Using overdraft protection line. Grace Wang has an overdraft protection line. Assume that her October 2020 statement showed a latest (new) balance of $862. If the line had a minimum monthly payment
Home equity lines. Kai and Ivy Harris 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 loanto-value ratio of 75
Comparing credit and debit cards. Samuel Ramirez 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.
Evaluating debt safety ratio. Use Worksheet 6.1. Chloe Young 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
Evaluating debt burden. Ted Phillips has monthly take-home pay of $1,685; he makes payments of $410 a month on his outstanding consumer credit (excluding the mortgage on his home). How would you
Establishing credit history. After graduating from college last fall, Holly Baker took a job as a consumer credit analyst at a local bank. From her work reviewing credit applications, she realizes
Avoid credit problems, protect yourself against credit card fraud, protect yourself against identity theft, and understand the personal bankruptcy process. LO1
Short-term investments and inflation.Describe some of the short-term investments that can be used to manage your cash resources. What factors would you focus on if you were concerned that inflation
Determining the right amount of shortterm, liquid investments. Ella and Aaron Martin together earn approximately $92,000 a year after taxes. Through an inheritance and some wise investing, they also
Calculating interest earned and future value of savings account. If you put $6,000 in a savings account that pays interest at the rate of 3 percent, compounded annually, how much will you have in
Calculating the net costs of checking accounts. Determine the annual net cost of these checking accounts:a. Monthly fee $4, check-processing fee of 20 cents, average of 23 checks written per monthb.
Exposure from stolen ATM card. Suppose that someone stole your ATM card and withdrew $1,000 from your checking account.How much money could you lose (according to federal legislation) if you reported
Choosing a new bank. You’re getting married and believe your present bank is not a good fit. Discuss how you should go about choosing a new bank and opening an account. Consider the factors that
Comparing banks online. What type of bank serves your needs best? Visit the Internet sites of the following institutions and prepare a chart comparing the services offered, such as traditional and
Adapting to a low-interest-rate environment. A retired couple has expressed concern about the really low interest rates they’re earning on their savings. They’ve been approached by an adviser who
They can open a joint account that allows either one to write checks (the most common type of joint account) L01
They can open a joint account that requires both signatures on all checks. L01
They can each open individual checking accounts (on which the other cannot write checks). L01
Develop a cash management strategy that incorporates a variety of savings plans.? L01
Calculate the interest earned on your money using compound interest and future value techniques. L01
Open and use a checking account. L01
Select the checking, savings, electronic banking, and other bank services that meet your needs. L01
Describe today’s financial services marketplace, both depository and nondepository financial institutions. L01
Understand the role of cash management in the personal financial planning process. L01
Effective tax planning. Explain the key elements of effective tax planning. What are some of the most popular tax management strategies? LO1
Getting help with tax form preparation. Noah King’s busy job doesn’t leave him much spare time. Consequently, he would like some help preparing his federal tax forms. What advice would you give
Preparing for a tax audit. Paige and Landon Diamond have been notified that they are being audited. What should they do to prepare for the audit? LO1
Effect of tax credit vs. tax deduction. Explain and calculate the differences resulting from a $1,000 tax credit versus a $1,000 tax deduction for a single taxpayer with $40,000 of pre-tax income. LO1
Education Tax Credits. Mason is married and has two sons. The older son, Harrison, is a graduate student working on his MBA. He paid $15,000 in tuition, $2,000 for textbooks and supplies, and
Calculating taxes on security transactions. If Julia Diaz is single and in the 24 percent tax bracket, calculate the tax impact of each of the following security transactions. (Use the IRS
Estimating taxable income, tax liability, and potential refund. Arabella Cunningham is 24 years old and single, lives in an apartment, and has no dependents. Last year she earned $55,000 as a sales
EFFE CTI E TAX P LAN N IN G. Mary Hall reports the following data from her 2015 tax return. Analyze the data and suggest tax planning ideas that she should consider.Salary $150,000 Interest income
EFFE CTI E TAX P LAN N IN G. Explain the key elements of effective tax planning. What are some of the most popular tax management strategies? LO1
GE TTIN G H E LP W ITH TAX FO RM P RE P ARATIO N. Lewis Olson busy job doesn’t leave him much spare time. Consequently, he would like some help preparing his federal tax forms. What advice would
PRE P ARIN G FO R A TAX AUD IT. Colin and Sophie Griffin have been notified that they are being audited. What should they do to prepare for the audit? LO1
EFFE CT O F TAX CRE D IT S. TAX D E D U CTIO N. Explain and calculate the differences resulting from a $1,000 tax credit versus a $1,000 tax deduction for a single taxpayer in the 25 percent tax
CH O O SIN G AN D P RE P ARIN G AN IN D I ID UAL TAX FORM . USE WOR SH E E TS 3.1 AN D 3.2. Mark Huang is single, graduated from college in 2015 and began work as a systems analyst in July of that
CALCU LATIN G TAXAB LE IN CO M E FO R A M ARRIE D COU P LE FILIN G JO IN TLY. Sam and Kate Coleman are married and have one child. Sam is putting together some figures so that he can prepare the
BILL’S SO N, JO E, IS 26 AN D A FU LL-TIM E GRAD UATE STUD E N T AT STATE U. For 2015, Bill provided Joe with $10,000 of support. Joe also received a scholarship of $10,000 which he used to pay his
CALCU LATIN G TAXE S O N SE CURITY TRAN SACTIO N S. If Julia Murray is single and in the 28 percent tax bracket, calculate the tax impact of each of the following security transactions. (Use the IRS
ES TIM ATIN G TAXAB LE IN CO M E, TAX LIAB ILI TY, AN D P O TE N TIAL RE FU N D . Hannah Owens is 24 years old and single, lives in an apartment, and has no dependents. Last year she earned $55,000
CALCU LATIN G M ARG IN AL TAX RATE S. Piper Wells is single and received the items and amounts of income shown below during 2015, as shown below. Determine the marginal tax rate applicable to each
Implement an effective tax planning strategy? LO1
Know where to get help with your taxes and how software can make tax return preparation easier. LO1
Explain who needs to pay estimated taxes, when to file or amend your return, and how to handle an audit. LO1
Prepare a basic tax return using the appropriate tax forms and rate schedules. LO1
Describe the sources of gross income and adjustments to income, differentiate between standard and itemized deductions and exemptions, and calculate taxable income. LO1
Discuss the basic principles of income taxes and determine your filing status. LO1
Tracking portfolio performance. Use Worksheet 11.2 to help Max and Heidi Wood, a married couple in their early 30s, evaluate their securities portfolio, which includes these holdings.a. IBM. (NYSE;
Choosing an online broker. Based on Exhibit 11.3, which online broker do you believe would be best for you? Explain your rationale. L01
Interpreting stock report information.Using the Value Line Investment Survey report in Exhibit 11.5, find the following information for Apple.a. What was the amount of revenues (i.e., sales)
Obtaining stock market quotes. 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
Finding and applying market index quotes.Using resources 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
Market and limit orders. Thomas Smith 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
Types of financial markets. What is the difference between primary and secondary markets and between broker and dealer markets? L01
Rationale for stock exchange listings. Why do you suppose that well-known companies such as Apple, Starbucks, and Facebook prefer to have their shares traded on the NASDAQ rather than on one of the
Calculate amount to invest to meet objectives. Use Worksheet 11.1. Phoebe Jones is now employed as the managing editor of a well-known business journal. Although she thoroughly enjoys her job and the
Describe an investment portfolio and how you’d go about developing, monitoring, and managing a portfolio of securities. L01
Gain a basic understanding of the impact of the Internet on the field of investments. L01
Develop an appreciation of how various forms of investment information can lead to better investing skills and returns. L01
Explain the process of buying and selling securities and recognize the different types of orders. L01
Distinguish between primary and secondary markets as well as between broker and dealer markets. L01
Discuss the role that investing plays in the personal financial planning process and identify several different investment objectives. L01
Auto insurance claims. Martin and Luna Perez 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
Supplemental property insurance. Eva and Blake Lewis 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
Personal automobile policy coverage. Zachary Lee 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
Evaluating personal automobile policy features. Riley Bell of Atlanta, Georgia is a single, 40-year-old loan officer at a large regional bank; he has a 16-year-old son. He has decided to use his
Collecting on a homeowner’s insurance claim. Isabelle Howard’s home in Seattle was recently gutted in a fire. Her living and dining rooms were completely destroyed, and the damaged personal
Need for renter’s insurance. Charles and Layla Moore, both graduate students, moved into an apartment near the university. Layla wants to buy renter’s insurance, but Charles thinks they don’t
Evaluating homeowner’s policy coverage.Last year, Thea and Rory Brown bought a home with a dwelling replacement value of $350,000 and insured it (via an HO-5 policy) for $310,000.The policy
Co-insurance clauses. Maya Ward had a homeowner’s insurance policy with $175,000 of coverage on the dwelling. Would a 90 percent co-insurance clause be better than an 80 percent clause in such a
Choose a property and liability insurance agent and company, and settle claims. T=8
Describe other types of property and liability insurance. T=8
Analyze the coverage in a personal automobile policy (PAP) and choose the most cost-effective policy. T=8
Select the right homeowner’s insurance policy for your needs. T=8
Identify the types of coverage provided by homeowner’s insurance. T=8

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