Background information Jeff and Sharon Williams have been your clients for five years. They are very happy with your services and you're preparing to conduct their annual financial checkup meeting. During this meeting. you review their goals, update their financial data, and review their investment performance. Personal Data \& Information Husband: Jeff Williams, age 45 , Golf Course Manager Wife: Sharon Williams, age 45, Teacher Marital Status: Happily married for 25 years Children: Three Children: Jarrod 24, Brett 18, Susan 16 Relevant Finanrial Information Client Goals Short Term Goals 1. Begin saving to purchase a new SUV for Jeff in five years 2. Review education fund savings to determine the amount that can be withdrawn to pay for Brett's education expenses this year 3. Review loan given to Jarrod to purchase a car 4. Help Susan learn the value of saving a portion of her ilart-time income for future goals and needs Long Term Goals 1. Maximize contributions to IRA accounts and employer-sponsored retirement accounts to meet retirement needs. Jeff and Sharon would like to retire at age 60 2. Annually update and review estate planning needs 3. Review savings plan to pay the complete education expenses for all three children Sharon would like to have $1,000,000 saved in her Roth IRA by the time she retires. If she contributes $5,000 per year at the beginning of each year until retirement, at an average 6% return, will she make her goal? Yes, she will have approximately $122,000 more then her goal Yes, she will have approximately $98,000 more then her goal No, she will be short approximately $98,000 of her goal No, she will be short approximately $122,000 of her goal Question 2 5 pts Jeff would like to set up an escrow account thatiproduces an after-tax annual return of 4% to make a cash purchase towards a $40,000 car in five years. How much should they save per month to accomplish this goal? $623 $603 $600 $614 Jeff's IRA balance at the beginning of last year was $178,880, after he made his annual contribution. What is Jeff's return on investment rounded to the nearest percent? 9% 2% Not enough information to solve 12% 7% Question 4 5 pts Jeff and Sharon gave Jarrod, their oldest son, a loan to purchase a car for $12,000 three years ago. They agreed to an interest rate of 6.5% and monthly payment of $250. What is the balance of the loan today? $4,668 $3,255 $3,625 $4,514 Jeff and Sharon bought 200 shares of growth stock at $55 per share in their taxable account. Today the stock is worth $28,165 with an average annual after tax return of 7.5%. How many years have they owned the stock? Not enough information 13 6 8 5 Question 6 5 pts Jeff and Sharon are beginning to teach Susan the value of saving a portion of her money from a part-time job. If she saved $100 today at an interest rate of 8%, compounded semi-annually, how many years would it take her to double her money? 8.8 17.6 Not enough information 16.9 Brett is starting college this year and Jeff and Sharon need to withdraw $10,000 from their education savings at the beginning of each year to pay tuition and books for the next four years. They expect to earn 11% compounded annually on their education savings. What will be the value of the account when Brett graduates in four years? $32,192 $45,235 $53,987 $59,167 Question 8 5 pts Sharon's parents bought the kids a total of 100 shares of aggressive growth stock three years ago at $40 per share. The current value of the stock is $30. The following dividends have been paid on the stock at the end of the year: Year 1$3.45 Year 2$4.25 Year 3$5.75 What is the internal rate of return (IRR) earned on this investment? 3% Rather then paying rent, Jeff and Sharon want to purchase, with cash, a $95,000 town home for their son Brett to live in while attending college. They expect the home to increase in value at a rate of 5% annually. The opportunity cost for the cash purchase is 7% (discount rate). They believe Brett can find roommates to pay rent toward the purchase that will produce the following net after-tax cash flows: Year1$300Year2$300Year3$400Year4$500 What will the value of the home be if sold at the end of the fourth year? $115,473 $132,152 $99,750 $124,525 Rather then paying rent, Jeff and Sharon want to purchase, with cash, a $95,000 town home for their son Brett to live in while attending college. They expect the home to increase in value at a rate of 5% annually. The opportunity cost for the cash purchase is 7% (discount rate). They believe Brett can find roommates to pay rent toward the purchase that will produce the following net after-tax cash flows: Year 1$300 Year 2$300 Year 3$400 Year 4$500 What is the NPV of the investment at the end of the fourth year? $5,656 $2,967 $3,894 $3,962 Rather then paying rent, Jeff and Sharon want to purchase, with cash, a $95,000 town home for their son Brett to live in while attending college. They expect the home to increase in value at a rate of 5% annually. The opportunity cost for the cash purchase is 7% (discount rate). They believe Brett can find roommates to pay rent toward the purchase that will produce the following net after-tax cash flows: Year 1$300 Year 2$300 Year 3$400 Year 4$500 Is this a good investment for Jeff and Sharon from a purely financial standpoint? Yes, because the NPV implies that the rate of return on future cash flows is greater then the opportunity cost used to discount future cash flows No, because the NPV implies that the rate of return on future cash flows is less then the opportunity cost used to discount future cash flows