Application Assignment 3: Financial Planning

MATH 1395, Spring 2017

Overview Financia Inc. would like to contract your services due to internal scheduling conflicts. They have consulted you to compile a financial plan for their client, Mr. Braverman. The client has provided you with the necessary information to conduct the analysis. You should work in teams up to four students. The assignment is due before on the day of the final exam. An electronic copy of the assignment is available on BlackBoard. This includes an answer sheet that may help you organize your work as well as the description of the extra credit opportunity.

What to turn in Each student must submit a technical worksheet (90% of grade). To best maintain accuracy, round only your final answers. Final dollar amounts should be given to the nearest cent. Each group will turn in a work page, VERY neat, organized, and stapled (10% of grade). If you use the finance app, include the list of variables as inputted.

Client Information After TWO years of marriage, Mr. Braverman and his wife Jasmine are planning for two major purchases: a new vehicle and a new house. Complete the financial requests below and report your final answers in the technical worksheet. The following information has been provided by the client and market researchers:

After taxes and medical insurance, the client has a monthly net income of $9,000 for the household.

The client plans to purchase a new 2017 Chevrolet Traverse SUV. He expects a purchase price of $42,420. He has qualified for a 60-month auto loan at a rate of 3.2% compounded monthly. He will trade in his current vehicle, which is valued at $14,000, and use this money as a down payment toward the new SUV. http://www.chevrolet.com/traverse-mid-size-suv

The clients have been saving $1500 each MONTH for the past TWO years. They also have $10,000 that they received as a wedding gift from his father Zeke. These savings have all been deposited into this same savings account which is earning 1.6% compounded monthly. They will use the total savings as a down payment on a house.

Now that saving for a down payment is complete, the client would like to purchase a house. They believe they can afford a monthly payment up to $2,225 and plan on a mortgage with a 30-year term.

The client is considering 2 houses. House A costs $484,700 and House B costs $441,900 (seller pays closing costs).

Mortgage rates are currently 4.25% for a 30-year term and 3.44% for a 15-year term, both compounded monthly. The loan begins on June 1, 2017, and payments are made at the end of each month.

Financial Requests

Find the monthly payment for the clients new vehicle.

Find the total interest paid for the new vehicle.

Find the balance on the vehicle loan after 2 years.

Create an amortization schedule for the first 3 months of the auto loan. (Refer to page 213 of text.)

How much money is available as a down payment for the clients house? Be sure to include both monthly savings amounts and gift amount.

Given the financial goals of the client what most expensive house that he can afford?

Mr. Braverman wishes to purchase the most expensive house that they can afford. Is this house A or house B? Determine the Loan Amount for this house.

Determine the clients monthly mortgage payment.

Determine the total interest that will be paid during the entire 30 year loan.

Find the balance of the home 10 years after purchase. At this point, he has paid a total of $_______________ in payments. $_____________ towards the house and $_____________ towards interest.

Determine the monthly payment if the client chooses a 15-year term for the mortgage

How much would the client save in interest by choosing the 15-year term mortgage instead of the 30-year term mortgage during the lifetime of each loan?

13): Suppose the client chooses the 30-year loan. If the client pays $100 extra each month, how long (in months) will it take him to pay off the loan? How much could he save over the life of the loan by paying $100 extra each month?

Technical Worksheet 1395.A3.S17

	Financial Plan for Mr. Ferrell	Final value
1	Monthly payment for new vehicle	$ .20
2	Interest paid for new vehicle	$ .00
3	Vehicle balance after 2 years	$ .76

4 Amortization schedule (first 3 months of auto loan)

Payment number	Payment Amount	Interest for period	Portion to Principal	Principal at end of Period
0	---	---	---	$ 28420.00
1				$
2				$
3				$

5	Total amount saved for down payment	$ .39
6	Price of home that can be purchased	$ .42
7	Loan amount for house (circle: A or B)	$ .61
8	Monthly mortgage payment	$ .80
9	Total interest paid during 30-yr mortgage	$ .39
10a	Mortgage balance after 10 years	$ .39
10b	Total of mortgage payments during 10 years	$ .00
10c	Total paid on principal during 10 years	$ .22
10d	Total of interest paid during 10 years	$ .78
11	Mortgage payment for 15-year term	$ .00
12	Interest saved with 15-year term	$ .00
13	Months required to pay of loan with extra $100 each month.	.449 months
13b	Savings if the client chooses the 30-year loan but pays an extra $100 each month.	$ .84

Your answers should match the given decimal places. Payments months are rounded to 2 decimals in calculations.

Remember to turn in your work neat and organized. Sloppy work will be penalized. (2 points)

Each question is 1 point with the following exceptions: #4 (4 points), #10 (2 points), #13 (2 points)

Bonus Opportunity Explore mortgage options using BankRates Amortization Schedule Calculator

This section is more easily done with the formulas presented in class, but it is possible to use the TVM calculator for pieces of each option and combine them to find the solutions. Answers for this section must be thoroughly justified.

For each option below, determine how much the client will save over the life of the loan compared to the original 30-year loan (questions 7-10). Round to the nearest dollar. Consider each option individually they are NOT cumulative (clear out information for option 1 before you do option 2).

Option 1: The client gets a $2,000 bonus every December and adds it to his house payment for that month.

Option 2: The client receives $20,000 inheritance in August 2026 and adds it to that months house payment.

Option 3: The client pays an extra $25 every month toward the house payment.

Option 4: The client pays one point (a point is 1% of the loan amount) when setting up the loan in order to earn a better interest rate of 3.0% APR. (Consider both the savings from interest and the cost of the point)

Include your answers clearly at the end of your work page, if you work as a group. Or, you may choose to do the bonus individually and turn it in on a separate sheet. Regardless, label them as BONUS. Please use commas in the thousands place and round to the nearest cent.