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Personal Finance, Fifth Edition by Jeff Madura BUILDING YOUR OWN FINANCIAL PLAN WORKBOOK INDEX Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Chapter 17 Chapter 18 Chapter 19 Chapter 20 Chapter 21 Your Documents Your Decisions SAMPSON FAMILYA CONTINUING CASE WORKBOOK INDEX Chapter 1 Chapter 2 Chapter 3 Chapter 4 Chapter 5 Chapter 6 Chapter 7 Chapter 8 Chapter 9 Chapter 10 Chapter 11 Chapter 12 Chapter 13 Chapter 14 Chapter 15 Chapter 16 Chapter 17 Chapter 18 Chapter 19 Chapter 20 Chapter 21 BRAD BROOKSA CONTINUING CASE WORKBOOK INDEX Part 1 Part 2 Part 3 Part 4 Part 5 Part 6 Copyright 2014 by Pearson Education Developed by KMT Software, Inc. Name: Bo Savage Date: 1/12/2016 Chapter 1 Building Your Own Financial Plan Goals 1. Evaluate your current financial situation 2. Set short-term, intermediate-term, and long-term goals Analysis 1. Complete the Personal Finance Goals template below by stating one or more short-term, intermediate-term, and long-term financial goals for yourself. Personal Financial Goals Financial Goal Short-Term Goals 1. Credit Cards 2. Other Debt 3. Arrears Dollar Amount to Accomplish Description of Your Goals $1,357 Pay off credit cards $748 Debt Collectors $640 Pay off arrears Intermediate-Term Goals 1. Mazda 2. Subaru 3. Own Business $4,387 Pay off my Rx-8 $5,343 Pay off my Impreza $6,500 Run business Full-time Long-Term Goals 1. House 2. Boat 3. Savings $7,211 Buy House $2,300 Buy a Speed Boat $4,427 Have a large amount 2. A key part of the process of establishing your goals is evaluating your financial situation and career choices. Go to the "Occupational Outlook Handbook, 2010-11 Edition" (http://www.bls.gov/oco/home.htm) and research two careers that are of interest to you. Complete the template below with the information you find on this Web site. Occupational Outlook Handbook, 2010-11 Edition Personal Career Goals Information Career One Career Two Job Title Computer Hardware Engineers Graphic Designers Educational Requirements Bachelor's degree Bachelor's degree Advancement Potential computer and information systems managers. 3% (Slower than average) chief designer, art director or creative director. 1% (Little or no change) Salary Range $108,430 per year $52.13 per hour $45,900 per year $22.07 per hour Continuing Education Requirements None None Related Occupations Computer Web Developers, Programmers,Software Industrial Designers, Art Developers, Directors Computer hardware Many of these workers Computer and engineers usually work in are employed in Information Research research laboratories specialized design Scientists that build and test services, publishing, or various types of advertising, public computer models. Most relations, and related Computer hardware Graphic designers work in high-tech services industries. In engineers solve combine art and manufacturingarise in firms. 2014, aboutto develop problems that technology 1 in 5 graphic designers were computer hardware. graphics for product self-employed. illustrations, logos, and Job Outlook Brief Description of Working Conditions Brief Job Description websites. Decisions 1. Describe your strategies for reaching your goals. I have over a decade of experience in computer repair and custom computer builds, I also have been a graphic designer and web developer for the same amount of time. I created separate businesses in both of these fields and created websites for both of my current businesses. I would rather go out on my own and be my own boss then to work for a company. I hope within the next five years or so I will have loyal customer base. I hope to learn more about furthering the success of my own business this year in school and using this knowledge to grow my businesses. I also hope to one day have my own building advertising my brand on a prime location and even have employment for others with skills and passion in these fields. Name: Bo Savage Date: 1/20/2016 Chapter 2 Building Your Own Financial Plan Goals 1. Determine how to increase net cash flows in the near future. 2. Determine how to increase net cash flows in the distant future. Analysis 1. Prepare your personal cash flow statement. Personal Cash Flow Statement Cash Inflows Disposable (after-tax) income Interest on deposits Dividend payments Other Total Cash Inflows Cash Outflows Rent/Mortgage Cable TV Electricity and water Telephone Groceries Health care insurance and expenses Clothing Car expenses (insurance, maintenance, and gas) Recreation Cell Phone Restaurants Vacations Other Total Cash Outflows Net Cash Flows This Month $2,400 50 20 0 $2,470 $200 60 40 10 40 160 50 500 200 130 200 0 500 2,090 $380 Rent/Mortgage Cable T V Electricity and water Telephone Groceries Health care insurance and expenses Clothing Car expenses (insurance, maintenance, and gas) Recreation Cell Phone Restaurants Vacations Other Personal Balance Sheet Assets Liquid Assets Cash Checking account Savings account Other liquid assets Total liquid assets $0 1,400 100 $1,500 Household Assets Personal electronics Car Furniture Other household assets Total household assets $5,000 25,000 2,000 3,000 $35,000 Investment Assets Stocks Bonds Mutual Funds Other investments Total investment assets $100 400 $500 Real Estate Residence Vacation home Other Total real estate $0 Total Assets $37,000 Liabilities and Net Worth Current Liabilities Loans Credit card balance Other current liabilities Total current liabilities $1,388 1,357 20 $2,765 Long-Term Liabilities Mortgage Car loan Other long-term liabilities Total long-term liabilities $200 9,730 $9,930 Total Liabilities $12,695 Net Worth $24,305 3. Reevaluate the goals you set in Chapter 1. Based on your personal cash flow statement, indicate how much you can save each year to reach the goals you set. Personal Financial Goals Dollar Amount Savings per Year Number of Years $1,357 $748 $640 $1,357 $748 $640 1.00 1.00 1.00 Intermediate-Term Goals 1. Mazda 2. Subaru 3. Own Business $4,387 $5,343 $6,500 $2,130 $2,594 $961 2.00 2.00 5.00 Long-Term Goals 1. House 2. Boat 3. Savings $7,211 $2,300 $4,427 $547 $175 $336 10.00 10.00 10.00 Financial Goal Short-Term Goals 1. Credit Cards 2. Other Debt 3. Arrears Decisions 1. Describe the actions you will take to increase your net cash flows in the near future. To increase my cash flows in the ear future, I wish to work two jobs to increase my salary income. Still, I will invest my savings in a return generating ventures that pays at least 6%p.a interest. I can also cut on expenses especially on car gas. 2. Detail your plans to increase your net cash flows in the distant future. I wish to increase my net cash flows by opening a savings account that pays 6% interest on the savings or else I will invest the amount I could have saved to return generating ventures.Also am planning to open a business and nature it until it grows to a big income generating operation. By investing my savings or having accounts that pay 6% on the amount, i will reduce the amount am supposed to save to meet all my goals. (Time V alue of Money) Name: Bo Savage Date: 1/28/2016 Chapter 3 Building Your Own Financial Plan Goals 1. Determine how much savings you will accumulate by various future points in time. 2. Estimate how much you will need to save each year in order to achieve the goals you have set. Time Value of Money Analysis 1. Assume that you have $1,000 to invest, so insert 1000 as your Present Value in the table below. Assume that you want to invest your money for 5 years (insert 5 for Number of Periods). Assume an annual interest rate of 3.00% (insert 3 for Interest Rate Per Period). The table below will determine the Future Value of your investment. If you input the numbers correctly, your Future Value is computed to be $1.159, which is what your investment will be worth in 5 years. Now revise the input to reflect your actual savings and the prevailing interest rate so that you can see how your savings will grow in 5 years. Even if you have no savings now, you can at least see how the interest rate affects the future value of savings but revising your input in the Interest Rate per Period, and then notice the change in the Future Value. Future Value of a Present Amount Present Value Number of Periods Interest Rate per Period Future Value $1,000 5 3.0% $1,159 2. Assume that you have $1,000 to invest at the end of each of the next 5 years, so insert 1000 as your Payment per Period in the table below. Assume that you want to invest your money for 5 years (insert 5 for Number of Periods). Assume an annual interest rate of 3.00% (insert 3 for Interest Rate Per Period). The table below will determine the Future Value of your investment. If you input the numbers correctly, your Future Value is computed to be $5,309, which is what your investments will be worth in 5 years. Now revise the input to reflect your actual expected savings per year over the next 5 years, and existing interest rate quotations so that you can estimate how your savings will grow in 5 years. Even if you do not expect to have any savings in the next 5 years, you can at least see how the interest rate affects the future value of savings by revising your input in the Interest Rate per Period, and then notice the change in the Future Value. Future Value of an Annuity Payment per Period Number of Periods Interest Rate per Period Future Value $1,000 5 3.0% $5,309 3. Assume that you want to have $10,000 in 5 years, so insert 10000 as the Future Amount and 5 as the Number of Periods in the table below. Assume an annual interest rate of 3.00% (insert 3 for Interest Rate Per Period). The table below will determine the Present Value, which represents the amount of savings you need today that would accumulate to be worth $10,000 in 5 years. If you input the numbers correctly, the Present Value is estimated in the table to be $8,606. Now revise the input to reflect your actual goal for 5 years, and the prevailing interest rate so that you can estimate how much savings you need today to achieve your goal. Even if you have no savings now, you can at least see how the interest rate affects the present value but revising your input in the Interest Rate per Period, and then notice the change in the Present Value. Notice how the larger the interest rate, the smaller the Present Value (funds you need today) to achieve a specific Future Value. Present Value of a Future Amount Future Amount Number of Periods Interest Rate per Period Present Value $10,000 5 3.0% $8,626 4. Assume that you want to have $10,000 in 5 years, so insert 1000 as the Future Amount, and 5 for Number of Periods. Assume an annual interest rate of 3.00% (insert 3 for Interest Rate Per Period). The table below will determine the Present Value, which represents the value today of your future investments. If you input the numbers correctly, your Present Value is computed to be $4,580, which represents the present value of your future investments. Even if you do not expect to have any savings in the next 5 years, you can at least see how the interest rate affects the present value of annual savings by revising your input in the Interest Rate per Period, and then notice the change in the Present Value. Present Value of an Annuity Payment per Period Number of Periods Interest Rate per Period Present Value $1,000 5 3.0% $4,580 Personal Financial Goals Financial Goal Short-Term Goals 1. Credit Cards 2. Other Debt 3. Arrears Dollar Amount Rate of Return Description of Your Goals $1,357 $748 $640 Pay off credit cards Debt Collectors Pay off arrears Intermediate-Term Goals 1. Mazda 2. Subaru 3. Own Business $4,387 $5,343 $6,500 Pay off my Rx-8 Pay off my Impreza Run business Full-time Long-Term Goals 1. House 2. Boat 3. Savings $7,211 $2,300 $4,427 Buy House Buy a Speed Boat Have a large amount 2. Revise the cash flow statement you created in Chapter 2 as necessary to enable you to achieve your goals. Personal Cash Flow Statement Cash Inflows Disposable (after-tax) income Interest on deposits Dividend payments Other Total Cash Inflows Cash Outflows Rent/Mortgage Cable TV Electricity and water Telephone Groceries Health care insurance and expenses Clothing Car expenses (insurance, maintenance, and gas) Recreation Cell Phone Restaurants Vacations Other Total Cash Outflows Net Cash Flows This Month $2,400 50 20 0 $2,470 $200 60 40 10 40 160 50 500 200 130 200 0 500 2,090 $380 Decisions 1. Report on how much you must save per year and the return you must earn to meet your goals. For my three long term goals that will be implemented 10 years from now, I need a total of (7211+2300+4427)=$13938. I must save a total of 1058 per year for 10 years and get a return of 6% so as to meet my goals. Name: Bo Savage Date: 2/4/2016 Chapter 4 Building Your Own Financial Plan Goals 1. Reduce taxable income (thereby reducing taxes paid) to the extent allowable by the IRS. 2. Reduce taxes paid by deferring income. Analysis 1. Use the template below to estimate your federal income tax liability based on the 2012 guidelines presented in the text or current tax regulations and rates. Select (x) one of the following as your Filing Status: Single Married, Filing Joint Return Married, Filing Separate Return Head of Household Qualifying Widow(er) with Dependent Child x Your status will determine how you compute your taxes, as shown in Exhibit 4.6 in the text. Gross Income Computation: Salary (After Retirement Contribution) $31,800 Interest Income $600 Qualified Dividend Income $240 Long-term Capital Gain Short-term Capital Gain $20 Gross Income $32,420 Standard Deduction (Refer to Exhibit 4.4 in text) $11,900 Itemized Deductions Medical Expenses $129 Minus .075 x Adjusted Gross Income $2,432 Deductible Medical Expenses $0 State Income Taxes $564 Real Estate Taxes $0 Interest Expense $212 Charitable Donations $1,000 Total Itemized Deductions $1,776 Enter the larger of the Total Itemized Deductions or Standard Deduction Exemptions $3,800 X $11,900 2 (number of exemptions) $7,600 Taxable Income (Gross Income - Deductions and Exemptions) $12,920 Tax Liability (Refer to Exhibit 4.6 in text) $17,400 Tax on Capital Gains and Dividends Qualified Dividends Long-term Capital Gains $240 $0 Long-term Capital Gains Tax Rate (From Exhibit 4.3) Tax on Capital Gains and Dividends Your Total Tax Liability (capital gains tax plus tax liability) $0 $17,400 Name: Date: Chapter 4 Building Your Own Financial Plan 2. For each of the goals you established in Chapter 1, indicate tax advantage options that may enable you to increase your deductions and/or reduce your gross income. Personal Financial Goals Dollar Amount Rate of Return Description of Your Goals Tax Advantage Options $1,357 748 640 0.00% 0.00% 0.00% Pay off credit cards Debt Collectors Pay off arrears 407 224 213 Intermediate-Term Goals 1. Mazda 2. Subaru 3. Own Business $4,387 5,343 6,500 0.00% 0.00% 0.00% Pay off my Rx-8 Pay off my Impreza Run business Full-time 1361 1603 500 Long-Term Goals 1. House 2. Boat 3. Savings $7,211 2,300 4,427 0.00% 0.00% 0.00% Buy House Buy a Speed Boat Have a large amount 1500 745 2200 Financial Goal Short-Term Goals 1. Credit Cards 2. Other Debt 3. Arrears 3. If you are considering hiring a tax preparer, use the following questions as an interview guide to screen candidates. Years 1. How long have you been preparing tax returns? 3.0 2. What training have you had in the preparation of tax returns? College degrees earned: Accounting Tax training courses: CPA Certifications: second class honours Years 2 3. How long have you worked for this organization? 4. Do you carry professional liability insurance? Yes/No No 5. Is this your full-time job? yes 6. If I am audited, are you authorized to represent me before the IRS? yes 7. How many hours of continuing professional education are you required to have each year to maintain your employment? 24 8. How many tax returns do you prepare per year? 3 9. What type of software does your firm use to prepare returns? excel 10. What percentage of the returns done by you have been audited? 60.00% Decisions 1. Describe the actions you will take (i.e., increasing deductions or reducing gross income) to achieve tax savings in the present year. I will increase the cost of expenditure hence more deductions 2. Detail the means by which you will reduce your tax liability (i.e., increasing deductions or reducing gross income) in the future. Have wife claim 1 and I claim 2 will equal our exemptions to 3 divided between us will allow a refund.Reducing gross income Name: Bo Savage Date: 2/4/2016 Chapter 5 Building Your Own Financial Plan Goals 1. Identify the banking services that are most important to you. 2. Determine which financial institution will provide you with the best banking services. Analysis 1. Evaluate what banking services are most important to you with a score of "10" for the most important and "1" for the least. Then evaluate five financial institutions with respect to the services offered; rate the institutions from "5" as the best for that service to "1" as the worst. The template will calculate scores for each institution. Banking Services Scorecard COMMERCIAL: BANK SERVICES OFFERED 1. Hours of operations - evenings, Saturdays 2. Locations - proximity to work and home 3. Fees/Minimum balance for checking accounts 4. Fees for ATM usage 5. Interest rate on savings accounts 6. Interest rate on checking accounts 7. VISA/MasterCard available and annual fee 8. Interest rate on home loans 9. Interest rate on car loans 10. Safety deposit boxes and rental rates TOTAL SCORE FOR EACH INSTITUTION PRIORITY RANK SCORE SAVINGS INSTITUTION RANK SCORE CREDIT UNION RANK MICROFINANCE SCORE RANK MUTUAL FUNDS SCORE RANK SCORE 10 5 5 5 50 25 0 0 5 5 50 25 5 10 50 50 3 3 30 15 7 7 5 5 10 7 9 5 3 3 4 4 5 3 4 5 21 21 20 20 50 21 36 25 289 0 0 0 0 0 0 0 0 0 4 5 5 5 5 4 5 5 28 35 25 25 50 28 45 25 336 7 9 5 10 5 7 7 5 49 63 25 50 50 49 63 25 474 4 4 5 5 5 4 5 5 28 28 25 25 50 28 45 25 299 Name: Bo Savage Date: 2/4/2016 Chapter 5 Building Your Own Financial Plan 2. Use the following worksheet as a guide for reconciling your checking account balance by entering data from your bank statement and checkbook register. If the two balances do not match, carefully check your math and records. If there is still a discrepancy, contact the financial institution. Bank Statement Balance Plus Deposits in Transit (Total of deposits that appear in your checkbook but do not appear on the bank statement) $1,400.00 Checkbook Register Balance 500.00 Plus Interest $1,400.00 650.00 Subtotal Minus Outstanding Checks (Total of any checks that you have written that do not appear on the bank statement; use the following template to aid your computations) $1,900.00 Subtotal 350.00 Minus service charge $2,050.00 500.00 Subtotal Plus - Other (Any items that appear in your checkbook but do not appear on the bank statement as well as any error that the bank has made)* $1,550.00 Subtotal 20.00 Plus - Other (including errors in your checkbook) $1,550.00 20.00 Description: Description: Minus - Other* Minus - Other (including errors in your checkbook) Description: Description: Reconciled Balance $1,550.00 Reconciled Balance $1,550.00 *Example: If you have ordered new checks and deducted the amount form your checkbook but the bank has not yet deducted the amount from your account. Outstanding Checks CK# CK# CK# CK# CK# CK# Total 1 2 3 4 Amounts $35.00 50.00 100.00 165.00 $350.00 Decisions 1. Describe the services and characteristics that are of prime importance to you in a financial institution. Allowing me to deposit my money is of [prime importance. This is because financial institutions will encourage me save for my future goals. Another one is checking services as it makes transactions easier. 2. Which of the financial institutions you evaluated is most optimal for your needs? Why? I use North Central Area Credit Union. I do all my banking online which is important. I also refinanced my Rx-8 and subaru through them with under 4% interest. Name: Bo Savage Date: 02/0416 Chapter 6 Building Your Own Financial Plan Goals 1. Maintain sufficient liquidity to ensure that all your anticipated bills are paid on time. 2. Maintain sufficient liquidity so that you can cover unanticipated expenses. 3. Invest any excess funds in deposits that offer the highest return while ensuring liquidity. Analysis 1. Review the cash flow statement you prepared in Chapter 3 and assess your liquidity. Click here to go to the Cash Flow Statement 2. Evaluate the short-term goals you created in Chapter 1 as high, medium, or low with respect to liquidity, risk, fees/minimum balance, and return. Short-term Goal Prioritization of Factors LIQUIDITY RISK FEES/MINIMUM BALANCE medium low low medium Other Debt low low low medium Arrears high medium high low SHORT-TERM GOAL Credit Cards RETURN 3. Rank each of the money market investments as good, fair, or poor with respect to liquidity, risk, fees/minimum balance, and return. MONEY MARKET INVESTMENT LIQUIDITY RISK FEES/MINIMUM BALANCE RETURN Checking Account good good good poor NOW Account good good good poor Savings Account Money Market Deposit Account (MMDA) good good good fair good good good good Certificate of Deposit fair fair fair good Treasury Bill fair good fair good Money Market Fund fair good fair good Asset Management Account poor good good good Decisions 1. Describe how you will ensure adequate liquidity to cover anticipated expenses. I would invest in money market funds that has a maturity coinciding with the anticipated expense. 2. Detail how you will ensure liquidity to meet unanticipated expenses. I would ensure I always have 20%in liquid funds for emergencies because unanticipated expenses are emergencies 3. Explain which money market investments will be most effective in reaching your short-term goals. From the above list of money market investiments, I think savings account and money market deposit accounts are the best for me. They have a good level of liquidity as well as allowing some returns. Name: Date: Chapter 7 Building Your Own Financial Plan Goals 1. Evaluate your credit report. 2. Determine your overall creditworthiness. 3. Establish practices that will safeguard you from identity theft. Analysis 1. Obtain a copy of your credit report from www.annualcreditreport.com, scrutinize the report, and report any inaccuracies to the credit bureaus. www.annualcreditreport.com 2. Go to www.msn.com, and go the money section and review the personal finance information. Go to the debt evaluation section and follow the instructions. www.msn.com 3. Inventory your wallet/purse to determine if you can reduce your risk to identity theft by selectively removing certain items. Item Description National Idcard Credit card land title Identity Theft Risk (High/Low) high high high If Previous Column Necessary to Marked "No," Where Carry? (Yes/No) Should Item be Stored? yes yes no Save box at home or with banks. driver's license high yes atm high yes birth card high no safely at home safe box Decisions 1. Are there any errors on your credit report that you must correct? How can you improve your creditworthiness? none 2. In addition to inventorying your wallet/purse and removing items from it, what other steps can you take in your life to reduce your exposure to identity theft? Ensure i have protected my personal data with authentication codes. Avoid posting personal information online unless am sure the sites are secure. Name: Date: Chapter 8 Building Your Own Financial Plan Goals 1. Establish a credit limit that will enable you to pay credit card balances in full each month. 2. Select credit cards that will provide the most favorable terms at the lowest cost. Analysis 1. Referring to your personal cash flow statement, determine how much excess cash inflows you have each month. Based on this amount, set a self-imposed credit limit each month so that you can pay off your balance in full. If you have existing credit card debt, use the template below to determine how many months it will take you to pay off your balance at three different monthly payment amounts. (The Excel template will perform the calculations for you.) Revise your cash flow statement based on your decisions. Alternative 1 Alternative 2 Alternative 3 Credit Card Debt $500 $500 $500 Monthly Payment $150 $100 $200 8.000% 8.000% 8.000% 3.38 5.10 2.53 Interest Rate per Year Months to Pay off Debt 2. Use the following worksheet to select a credit card with favorable terms. Rate the cards from "5" being the best in a category to "1" being the worst. Bank Credit Card Scorecard CREDIT CARD ISSUER QUESTION 1. Annual fee 2. Interest rate on purchases 3. Interest rate on cash advances 1 2 3 4 5 4 2 3 4 1 4 2 3 5 2 4 5 3 3 3 4. Transaction fee for cash advances 5. Insurance on purchases 3 5 3 4 2 5 4 2 4 2 6. Credit earned toward purchases at selected businesses 7. Frequent flyer miles 2 3 2 1 4 2 5 1 5 3 4 2 5 34 5 3 2 32 3 3 4 31 5 4 3 32 4 3 4 35 8. Free delivery on mail order purchases 9. Phone card capability 10. Credit limit available TOTAL Decisions 1. What is your self-imposed credit limit each month for future credit card purchases? How much of your cash inflows do you need to allot each month to paying off any existing credit card debt? My self imposed credit limit is $1000. I will allocate $150 each month to paying existing credit card debt. 2. What credit cards offer the most favorable terms for your needs? Credit card by issuerer 5.It has the highest score. Name: Date: Chapter 9 Building Your Own Financial Plan Goals 1. Limit your personal financing to a level and maturity that you can pay back on time. 2. For loans you anticipate needing in the future, evaluate the advantages and disadvantages of lenders. 3. Compare the cost of buying and leasing a car. Analysis 1. Review your personal cash flow statement. How much can you afford to pay each month for personal loans? Click here to view the personal cash flow statement 2. Identify several prospective lenders for personal loans you may need in the future. What are the advantages and disadvantages of each source with respect to the interest rates offered, method of calculating interest, other criteria of importance to you. Loan Evaluation Loan One DESCRIPTION OF for purchasing a car Loan of $6000,000 LOAN that is to repaid within a period of 2yrs. SOURCES FOR LOAN Bank ADVANTAGES OF SOURCE lumpsum at once Enough repayment period DISADVANTAGES OF SOURCE High interest Varying inrerest rates No security required i.e collateral Hidden costs of a loan Limited amount of loan since its ones shares Guarantors access is difficult Share certificates Low interest rates High cost of repayment SOURCES FOR LOAN 1. Micro finance instituitions ADVANTAGES OF SOURCE Easy to access Cheaper interest rates DISADVANTAGES OF SOURCE High hidden costs Limited amount 2.Insurance company Long repayment period Faster to access Varying interests 3.Community development Finance Association Readily available Long procedures Sacco Low interest rates Loan Two DESCRIPTION OF LOAN A loan of $ 5,800,000 for purchasing a vehicle Loan Three DESCRIPTION OF LOAN A loan of $ 5500000 for purchasing a car ADVANTAGES OF SOURCES FOR LOAN SOURCE 1.Social Enterprise loan Low rates of interest fund DISADVANTAGES OF SOURCE Varying interests 2.Bank Unlimited amount of loans Collateral is necessary 3.Loan Stocks Cheaper cost of repayments Involves long procedures to access 3. Compare the cost of purchasing a car versus leasing a car over a four-year period. Cost of Purchasing vs. Leasing a Car Cost of Purchasing the Car Down payment Interest rate Number of months Annual forgone interest on down payment Monthly payment on car loan Total monthly payments $1,000,000 12.000% 24 $240,000 $180,833.00 $4,339,992.00 Total cost of purchasing Expected amount to be received when car is sold Total cost of purchasing $5,579,992.00 $5,579,992.00 Cost of Leasing the Car Security deposit Forgone interest Monthly lease payments Total monthly payments Total cost of leasing $1,500,000 $360,000.00 $240,000.00 $5,760,000.00 $6,120,000.00 $6,120,000.00 $ 6,200,000.00 $ 6,100,000.00 $ 6,000,000.00 $ 5,900,000.00 $ 5,800,000.00 $ 5,700,000.00 $ 5,600,000.00 $ 5,500,000.00 $ 5,400,000.00 $ 5,300,000.00 $5,579,992.00 Tot al cost of purchasing Tot al cost of leasing Decisions 1. Report how much you can afford to spend each month on personal loans. I will cut down on my personal expenditure so as to be able to save hence spending more on personal loans.I will also find another source of income for example a part time job or a small business to supplement my needs. 2. Report which lenders you may consider using in the future and why. Insurance companies. This is due to the fact that their interest rates are low compared to others. 3. Is purchasing or leasing a vehicle a better choice for your needs? Purchasing a vehicle is a better choice Name: Date: Chapter 10 Building Your Own Financial Plan Goals 1. Limit the amount of mortgage financing to an affordable level; determine if homeownership or renting is better financially. 2. Select the shortest loan maturity with affordable monthly payments. 3. Select the mortgage loan type (fixed or adjustable rate) that is most likely to result in the lowest interest expenses. Analysis 1. The amount of home that a person can afford is affected by many factors. The templates below will help you to determine the impact of interest rates, term of loan, and loan type (i.e., fixed or adjustable rate) on this process. Go to www.lendingtree.com. Click on "Advice & Calculators,\" then "Loan Calculators." Referring to the personal cash flow statement developed in Chapter 2, use the amount that you determined is available for rent as the basis for the amount of home payment that you can afford each month. By using trial and error on the adjustable and fixed mortgage loan calculators, adjust the amount of mortgage either up or down until the \"monthly payment\" approximately equals the amount you determined for rent in your cash flow statement. Enter the amount of the mortgage that you can afford in the templates below as well as the amount of the down payment that you have or expect to have when you purchase a house. Repeat the process using the other interest rates and mortgage terms indicated in the worksheets. Remember: Maintain the same \"number of months between adjustments,\" \"expected adjustments,\" and \"interest rate cap\" for each of the adjustable-rate calculations. www.lendingtree.com Fixed Rate Interest Rate Term Amount of Down Payment Amount of Mortgage Total Price of Home (Down Payment Plus Mortgage) 6% 30 Years Interest Rate Term Amount of Down Payment Amount of Mortgage Total Price of Home (Down Payment Plus Mortgage) 8% 30 Years Interest Rate Term Amount of Down Payment Amount of Mortgage Total Price of Home (Down Payment Plus Mortgage) 6% 15 Years Interest Rate Term Amount of Down Payment Amount of Mortgage Total Price of Home (Down Payment Plus Mortgage) 8% 15 Years Adjustable Rate Starting Interest Rate Term Months Between Adjustments (not to exceed 12 months) Expected Adjustment Interest Rate Cap Amount of Down Payment Amount of Mortgage Total Price of Home (Down Payment Plus Mortgage) 6% 15 Years Starting Interest Rate Term Months Between Adjustments (not to exceed 12 months) Expected Adjustment Interest Rate Cap Amount of Down Payment Amount of Mortgage Total Price of Home (Down Payment Plus Mortgage) 8% 15 Years Starting Interest Rate Term Months Between Adjustments (not to exceed 12 months) Expected Adjustment Interest Rate Cap Amount of Down Payment Amount of Mortgage Total Price of Home (Down Payment Plus Mortgage) 6% 30Years Starting Interest Rate Term Months Between Adjustments (not to exceed 12 months) Expected Adjustment Interest Rate Cap Amount of Down Payment Amount of Mortgage Total Price of Home (Down Payment Plus Mortgage) 8% 30 Years Chapter continued on next worksheet. Name: Date: Chapter 10 Building Your Own Financial Plan 2. At www.msn.com, search listings of homes for sale in your price range by clicking on \"Shop,\" then on \"Buy a House.\" Complete the information requested under \"Compare and Find Homes\" to research cities and neighborhoods you are interested in. Record information on homes of interest below. www.msn.com From To Price Range: Zip Code: Potential Homes MSN PRICE ADDRESS LIST PRICE MONTHLY ESTIMATE PAYMENT REALTOR 3. Referring to your cash flow statement and personal balance sheet, compare the monthly payment estimates to the amount of rent you are currently paying. Determine the amount of a down payment you can afford to make. Click here to see cash flow statement Click here to see personal balance sheet Down payment 4. At www.msn.com, click on \"House and Home,\" then on \"Loans and Financing.\" Gather current information on loan rates and record it below. www.msn.com Mortgage Type Rate 5. Create an amortization table for the fixed-rate mortgage that is most affordable. (The template will calculate the monthly payment based on your input and create the amortization table.) Loan Amount Number of Years Annual Interest Rate Monthly Payment $0.00 Amortization Schedule for Year 1 Monthly Payment 0 0 0 0 0 0 0 0 0 0 0 0 Payment $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Principal $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Interest $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Balance $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Compare the allocation of principal versus interest paid per year on the loan. (The template will create a bar graph based on your input.) Amortization Schedule (Annual Totals) Year 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 Annual Payments $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Principal $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Interest $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 Balance $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $1.00 $0.90 $0.80 $0.70 $0.60 $0.50 $0.40 $0.30 $0.20 $0.10 $0.00 Interest Principal 1 2 3 4 5 6 7 8 9 Years 10 11 12 13 14 15 Name: Date: Chapter 10 Building Your Own Financial Plan 6. Select the mortgage with the best terms. Compare the cost of buying a home with these mortgage terms to renting over a three-year period. Renting vs. Owning a Home Cost of Renting Per Month Rent Renter's Insurance Opportunity cost of security deposit Total cost of renting Cost of Purchasing Per Month Mortgage payment Down payment Opportunity cost of down payment Property taxes Home insurance Closing costs Maintenance costs Total costs before tax benefits Tax savings on: Interest payments Property taxes Points (first year only) Total tax savings Equity investment Increase in home value Value of equity Cost of purchasing home over three years Amount Per Year $0 $0 Amount Per Year $0 Total over Three Years $0 0 0 $0 Total over Three Years $0 0 0 0 0 0 0 $0 0 0 $0 $0 $0 $1 $1 $1 $1 $1 $1 $0 $0 $0 $0 $0 Total cost of renting Cost of purchasing home over three years Decisions 1. What is the mortgage amount and down payment that you can afford? 2. Is a fixed-rate or adjustable-rate mortgage better suited to your financial situation? What maturity, interest rate, and monthly payment can you afford? 3. Describe whether homeownership or renting is preferable for you. Name: Date: Chapter 11 Building Your Own Financial Plan Goals 1. Ensure that your car and dwelling are adequately insured. 2. Prepare a home inventory. 3. Determine whether you should increase your auto or homeowner's or renter's insurance in the future. Analysis 1. Review the personal balance sheet you created in Chapter 2. Which assets require coverage from an auto or homeowner's/renter's policy? What risks should you insure against? Personal Balance Sheet 2. Using Web sites such as www.insurance.com and www.insweb.com, obtain two quotes from two different companies for automobile insurance. Have information on hand for the year, make, and model of your vehicle and estimates for how many miles you drive per year. Base the quotations on the limits of liability listed (e.g., bodily injury limit of $100,000/$300,000 limit). Insert the deductible you desire in the respective blanks on the form (and be sure to maintain the same deductible for all quotes). Input the information from each quote in the below templates to aid your comparison of the various policies. www.insurance.com www.insweb.com Company A: COVERAGE Liability Bodily Injury ($100,000/$300,000 limit) Property Damage ($50,000 limit) Subtotal Liability No-fault Medical Expenses and Income Loss Uninsured/Underinsured Motorist ($100,000/$300,000 limit) Deductible) Collision ($ Deductible) Comprehensive ($ Emergency Road Service Subtotal Additional Charges (List): Subtotal $0 $0 $0 Discounts in the Premium Anti-lock Brakes Accident-free Last 7 Years Other Discounts (List): Minus Total Discounts $0 Total Amount Due $0 Company B: COVERAGE Liability Bodily Injury ($100,000/$300,000 limit) Property Damage ($50,000 limit) Subtotal Liability No-fault Medical Expenses and Income Loss Uninsured/Underinsured Motorist ($100,000/$300,000 limit) Deductible) Collision ( Deductible) Comprehensive ( Emergency Road Service Subtotal Additional Charges (List): Subtotal $0 $0 $0 Discounts in the Premium Anti-lock Brakes Accident-free Last 7 Years Other Discounts (List): Minus Total Discounts $0 Total Amount Due $0 Name: Date: Chapter 11 Building Your Own Financial Plan 3. Complete your home inventory using the template below. Based on your inventory, how much personal property coverage should you have? Is replacement cost or cash value a better policy option? Do you need a personal property floater for any high-ticket items? In addition to facilitating the process of settling insurance claims and verifying losses, a home inventory helps you determine the amount of insurance you need. The complexity of your inventory depends on your stage in life and family situation. It's a good idea to include copies of sales receipts and purchase contracts with your inventory. After completing your home inventory, print multiple copies and file them in secure locations (safety deposit box, fireproof box, at your parent's home, etc.). You should also consider taking pictures of individual items or videotaping entire rooms as further documentation. Home Inventory Item Description Make and Date Acquired Model Estimated Estimated Purchase Replacement Cost Cost Electronics Computer Equipment Television Stereo Equipment DVD/VCR Cellular Phone/Pager Camera/Video Camera Total Electronics $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 Major Appliances Refrigerator/Freezer Stove Dishwasher Washer/Dryer Microwave Coffee Maker Vacuum Blender/Food Processor Total Major Appliances Clothing and Accessories Pants Shirts Sweaters Coats Dresses Skirts Shoes Accessories (Belts, Ties, etc.) Watches Rings Earrings Necklaces Bracelets Cufflinks Linens Towels Bedding Total Clothing and Accessories Furniture Living Room Set Dining Room Set Bedroom Sets Kitchen Set Bookshelves Lamps Rugs Patio Set Total Furniture Art and Music Books CDs/Records/Audio Tapes DVD/VCR Tapes Artwork Total Art and Music Kitchen Equipment Dishes Glassware Silverware Pots and Pans Utensils Total Kitchen Equipment $0 $0 $0 $0 $0 $0 $0 $0 Athletic Equipment Total Athletic Equipment Collectibles Total Collectibles Other Total Other Total Electronics Total Major Appliances Total Clothing and Accessories Total Furniture Total Art and Music Total Kitchen Equipment Total Athletic Equipment Total Collectibles Total O ther Total Electronics Total Major Appliances Total Clothing and Accessories Total Furniture Total Art and Music Total Kitchen Equipment Total Athletic Equipment Total Collectibles Total Other Name: Date: Chapter 11 Building Your Own Financial Plan 4. Using the following Web sites, obtain quotes for your homeowner's or renter's insurance policy. After obtaining the quotes, complete the worksheets below to aid your comparison of policies. Note: Some of these Web sites will provide you with a quote online while others will indicate that a quote will be sent to you via U.S. mail or other medium. Insert the deductible you desire on the form (and be sure to maintain the same deductible for all quotes). Web sites: www.amica.com www.progressive.com www.geico.com www.homeownerswiz.com Company A: Coverage and Limits Dwelling Personal Property ($ Deductible) Personal Liability Damage to Property of Others Medical Payments to Others (per person) Discounts Annual Premium Company B: Coverage and Limits Dwelling Personal Property ($ Deductible) Personal Liability Damage to Property of Others Medical Payments to Others (per person) Discounts Annual Premium Decisions 1. What are the key risks related to auto and homeowner's/renter's insurance that you will insure against? 2. What coverage levels will you maintain for your auto policy? Which of the policy quotes you requested is most attractive? What actions can you take to receive policy discounts in the future? 3. What coverage levels will you maintain for your homeowner's/renter's policy? Which of the policy quotes you requested is most attractive? What actions can you take to receive policy discounts in the future? Name: Date: Chapter 12 Building Your Own Financial Plan Goals 1. Ensure that your health and disability insurance adequately protects your wealth. 2. Develop a plan for your future health insurance needs, including long-term care. Analysis 1. Complete the following worksheet to aid your evaluation of information provided by your employer for your health insurance options. Which type of policy (indemnity plan, HMO, or PPO) is best suited to your needs and budget? Indemnity Plan Premium Co-Pay If Yes, Amount of Premium Co-Pay Coverage Eligibility Coverage: In State Out of State Out of the Country Prescription Coverage If Yes, Amount of Co-Pay Office Visits: Co-Pay Amount Annual Deductible If Yes, Amount of Deductible Hospital Benefits: Maximum Days of Hospital Care Maximum Days for Mental Health or Substance Abuse Yes No Self Two-person Yes Yes Yes Yes No No No No Yes No Days Days Co-Pay If Yes, Amount of Co-Pay Yes No Annual Deductible If Yes, Amount of Deductible Outpatient Care: Emergency Room Care Physical Therapy Occupational Therapy Speech Therapy Yes No Yes Yes Yes Yes No No No No Dental Coverage: If Yes, Co-Pay for Regular Checkups If Yes, Amount of Co-Pay Orthodontic Coverage: If Yes, Co-Pay for Regular Checkups If Yes, Amount of Co-Pay Yes No Yes No Yes No Vision Coverage: Frequency of Regular Eye Exams Co-Pay for Regular Eye Exams Frequency for New Lenses Co-Pay for New Lenses Frequency for New Frames Co-Pay for New Frames Yes Yes No Family HMO Premium Co-Pay If Yes, Amount of Premium Co-Pay Coverage Eligibility Coverage: In State Out of State Out of the Country Prescription Coverage If Yes, Amount of Co-Pay Office Visits: Co-Pay Amount Annual Deductible If Yes, Amount of Deductible Hospital Benefits: Maximum Days of Hospital Care Maximum Days for Mental Health or Substance Abuse Yes No Self Two-person Yes Yes Yes Yes No No No No Yes No Days Days Co-Pay If Yes, Amount of Co-Pay Yes No Annual Deductible If Yes, Amount of Deductible Outpatient Care: Emergency Room Care Physical Therapy Occupational Therapy Speech Therapy Yes No Yes Yes Yes Yes No No No No Dental Coverage: If Yes, Co-Pay for Regular Checkups If Yes, Amount of Co-Pay Orthodontic Coverage: If Yes, Co-Pay for Regular Checkups If Yes, Amount of Co-Pay Yes No Yes No Yes No Vision Coverage: Frequency of Regular Eye Exams Co-Pay for Regular Eye Exams Frequency for New Lenses Co-Pay for New Lenses Frequency for New Frames Co-Pay for New Frames Yes Yes No Family PPO Premium Co-Pay If Yes, Amount of Premium Co-Pay Coverage Eligibility Coverage: In State Out of State Out of the Country Prescription Coverage If Yes, Amount of Co-Pay Office Visits: Co-Pay Amount Annual Deductible If Yes, Amount of Deductible Hospital Benefits: Maximum Days of Hospital Care Maximum Days for Mental Health or Substance Abuse Yes No Self Two-person Yes Yes Yes Yes No No No No Yes No Days Days Co-Pay If Yes, Amount of Co-Pay Yes No Annual Deductible If Yes, Amount of Deductible Outpatient Care: Emergency Room Care Physical Therapy Occupational Therapy Speech Therapy Yes No Yes Yes Yes Yes No No No No Dental Coverage: If Yes, Co-Pay for Regular Checkups If Yes, Amount of Co-Pay Orthodontic Coverage: If Yes, Co-Pay for Regular Checkups If Yes, Amount of Co-Pay Yes No Yes No Yes No Vision Coverage: Frequency of Regular Eye Exams Co-Pay for Regular Eye Exams Frequency for New Lenses Co-Pay for New Lenses Frequency for New Frames Co-Pay for New Frames Yes Yes No Family Name: Date: Chapter 12 Building Your Own Financial Plan Analysis 2. If you are under age 60, long-term care insurance has probably not been a major concern to date. Based on your family health history, your financial situation, and any long-term illnesses that you have, should you look into getting a policy? Why or why not? 3. Referring to the personal cash flow statement you developed in Chapter 2 of this workbook, complete the following template to determine your disability insurance needs. Cash Flow Statement DISABILITY INSURANCE NEEDS Cash Inflows Minus Work Related Cash Inflows* Cash Inflows if Disabled Total Cash Outflows Minus Work-Related Cash Outflows* Cash Outflows If Disabled Cash Inflows Minus Outflows - Net Cash Flows If Disabled Employer Disability Insurance Social Security Workmen's Compensation Total Insurance Cash Inflows Net Cash Flows if Disabled Minus Total Insurance Cash Inflows** * Cash flows that will discontinue if you are not working. ** A negative number indicates the amount of disability insurance coverage that you need per month. However, if the number is positive it indicates that you have no need for disability insurance. Employer Disability Insurance Social Security Workmen's Compensation Decisions 1. What steps have you taken or will you take to ensure that your health insurance needs are being met? Which type of health insurance plan will you seek from your employer? 2. Does your age, personal health history, or family health history indicate that you should consider long-term care insurance? 3. What are your disability insurance needs? What amount of additional coverage, if any, do you require? $0 $0 0 0 $0 Name: Date: Chapter 13 Building Your Own Financial Plan Goals 1. Determine whether you need to purchase life insurance and if so, how much. 2. Determine the most appropriate types of life insurance. 3. Decide whether you should purchase or add to life insurance in the future. Analysis 1. Your life insurance needs are dependent upon several factors. The template below employs the budget method discussed in the text to determine the amount of insurance that you need. Complete the worksheet by filling in the appropriate information to determine your life insurance needs. 1. Annual living expenses (Refer to your personal cash flow statement developed in Chapter 2 to determine this figure.) 2. Minus spouse's disposable \"after- tax\" income 3. Minus interest or dividends from savings* 4. Minus other income 5. Annual living expenses to be replaced by insurance (line 1 minus lines 2, 3, and 4) 6. Assuming a 6 percent rate of return and the number of years of expenses for which you will need coverage, determine the present value (line 5 times PVIFA for years at 6 percent) 7. Insurance needs for annual living expenses (line 5 times line 6) 8. Special future expenses 9. The number of years until line 8 occurs multiplied by the present value of a dollar assuming 6 percent $0 $0 (line 8 times PVIF__________ years at 6 percent) 10. Insurance needs for special future expenses 11. Current debt to be repaid by insurance proceeds 12. Educational/training expenses for spouse to be paid by insurance proceeds 13. Value of existing savings 14. Final expenses (Funeral and other related items) 15. Life insurance provided by employer Total Insurance Needs $0 $0 2. Review the following information about types of life insurance plans. Indicate how suitable each type is for your situation in the right-hand column. Type of Insurance Plan Benefits Term Insurance Insurance benefits provided to beneficiary Whole-Life Insurance Insurance benefits provided to beneficiary and policy builds a cash value over time Universal Insurance Suitability Insurance benefits provided to beneficiary and policy builds a cash value over time 3. If you have determined that you need life insurance, obtain premiums for the policy type and amount you desire at www.prudential.com. Click on the \"Products & Services\" tab. Select the \"Guides, Tutorials & Calculators\" section Click on \"Life Insurance Quotes,\" and enter the premiums in the following template. www.prudential.com Policy Type Name of Insurance Company Total Premium 4. Make any necessary changes to your personal cash flow statement to reflect premiums for life insurance. Personal Cash Flow Statement Cash Inflows Disposable (after-tax) income Interest on deposits Dividend payments Other Total Cash Inflows Cash Outflows Rent Cable TV Electricity and water Telephone Groceries Health care insurance and expenses Clothing Car expenses (insurance, maintenance, and gas) Recreation Cell Phone Restaurants Vacations Other Total Cash Outflows Net Cash Flows This Month $2,400 50 20 0 $2,470 $200 60 40 10 40 160 50 500 200 130 200 0 500 2,090 $380 Decisions 1. Do you need life insurance? If so, how much and what type of policy will suit your needs? 2. What do you anticipate your life insurance coverage needs to be in the future? Name: Date: Chapter 14 Building Your Own Financial Plan Goals 1. Determine whether to invest, given your current cash flows. 2. Determine what kinds of investments you should purchase to meet your financial goals. Analysis 1. Review your cash flow statement to determine how much you can afford to invest in stocks each month. Click here to review your personal cash flow statement 2. Evaluate your risk tolerance to see if your temperament is suited to the uncertainty of investments. . , Risk Tolerance Quiz Answer True or False by entering an x in the appropriate box. Be sure to enter an x for only one box (True or False) per answer, otherwise your results will be incorrect. 1 0 1. If I own stock, I will check its price at least daily if not more often. ## 1 0 2. When driving on an interstate, and traffic and weather permit, I never drive in excess of the posted speed limit. ## 1 0 3. If the price of my stock declines, my first reaction is to sell. ## 1 0 4. Another stock market crash similar to 1929 could occur very unexpectedly. ## 1 0 5. When I fly in less than perfect weather, I tend to get nervous and concerned about my safety. ## 1 0 6. If I sold a stock at a loss of more than 25%, it would greatly shake my confidence in my ability to invest. ## 1 0 7. I intensely dislike blind dates. ## 1 0 8. When I travel, I write down a packing list to be sure that I don't forget anything. ## 1 0 9. When traveling with others, I prefer to do the driving. ## 1 0 10. Before buying a bond I would want to talk to at least two other people to confirm my choice. ## Score 0 Comment You have the risk tolerance to invest. Results 0-3 True: You have the risk tolerance to invest in individual common stocks. 4-6 True: You would be a nervous investor, but with more knowledge and a few successes, you could probably raise your risk tolerance to a suitable level. Mutual funds might prove a good starting point for your level of risk tolerance. 7-10 True: You are probably a very conservative and risk-intolerant investor who is probably better suited to a bond portfolio. 3. Determine whether investments will help you to achieve your short, intermediate, and long-term goals. Complete the template below for the short-, intermediate-, and long-term goals that you have established and reviewed throughout the course. In determining whether investing is suitable for each goal, take into consideration the timeline for accomplishing the goal, the critical nature of the goal, and, of course, the results of your risk tolerance test. For those goals that you determine investments are not suitable, enter an "N" in column two, and do not complete the rest of the line for that goal. If, however, you enter a "Y" in column two, think about the kind of investment that is appropriate and justify your selection of stocks as a risk-appropriate means to accomplish this goal. Short-Term Goals Credit Cards Other Debt Arrears SUITABLE ? TYPE OF Yes or No INVESTMENT JUSTIFICATION IntermediateTerm Goals Mazda Subaru Own Business SUITABLE ? TYPE OF Yes or No INVESTMENT JUSTIFICATION Long-Term Goals House Boat Savings SUITABLE ? TYPE OF Yes or No INVESTMENT JUSTIFICATION Decisions 1. Summarize your reasoning for either investing or not investing to meet your goals. 2. If you decide to invest, how much will you invest each month? What types of investments will you purchase? Why? Name: Date: Chapter 15 Building Your Own Financial Plan Goals 1. Determine a method to use for investing in stocks. Analysis 1. Answer each of the following questions by checking the appropriate box. a. I will feel better if I have a specific person to talk to about my account. Yes No b. I will require professional research assistance to make investment decisions. Yes No c. I will utilize banking-type services such as check writing and debit cards. Yes No d. I will feel more comfortable if I have a broker who calls me from time to time with suggestions to improve the performance of my portfolio. Yes No e. I will have a relatively complex portfolio that includes an after-tax account, Roth and/or traditional IRAs, and rollover IRAs. Yes No f. I will use my portfolio to meet a variety of goals with varying time horizons (short-, intermediate-, and long-term). Yes No g. I will require advice on the tax implications of my investments. Yes No h. My portfolio is large enough to require an annual review and rebalancing. Yes No i. I will sleep better if I know who is watching my money. Yes No j. I will feel better doing business with people who know my name. Yes No Total number of Yes answers 0 If you answered \"Yes\" to five or more of the above questions, you should seriously consider a full-service broker. If you answered "Yes" to fewer than five, you should use an online/discount broker. 2. Use the following template as a guide to compare three potential online or discount brokerage companies. Brokerage company name Cost per trade Available investments: Common stocks Yes No Yes No Yes No Preferred stocks Yes No Yes No Yes No Corporate bonds Yes No Yes No Yes No Municipal bonds Yes No Yes No Yes No Options Yes No Yes No Yes No Commodities Yes No Yes No Yes No Annuities Yes No Yes No Yes No Mutual funds (load) Yes No Yes No Yes No Mutual funds (no load) Yes No Yes No Yes No Money Markets Yes No Yes No Yes No Navigability of Web site Phone access to account information Real-time portfolio updates Minimum initial investment Availability of banking features (e.g., credit cards and checks) Research tools available Accounts available: Brokerage account Yes No Maint. Fee Yes No Maint. Fee Yes No Maint. Fee Traditional IRA Yes No Maint. Fee Yes No Maint. Fee Yes No Maint. Fee Roth IRA Yes No Maint. Fee Yes No Maint. Fee Yes No Maint. Fee Rollover IRA Yes No Maint. Fee Yes No Maint. Fee Yes No Maint. Fee Yes No Maint. Fee Yes College savings accounts Yes Maint. Fee Maint. Fee Referral service to independent financial advisors Yes No Yes No Yes No Record keeping services Yes No Yes No Yes No Extended hours trading service Yes No Yes No Yes No 3. What type of ordersmarket, limit, or buy stopdo you intend to use when purchasing stock? Do you intend to pay with cash or buy on margin? Why? Decisions 1. What type of brokerage firm will you work with full-service or discount/online? Why? 2. Summarize your decision on the type of orders you will place to purchase stock and your preference for using cash versus buying on margin. Name: Date: Chapter 16 Building Your Own Financial Plan Goals 1. Determine if you could benefit from investing in bonds. 2. If you decide to invest in bonds, determine what strategy to use. Analysis 1. Go to www.smartmoney.com and and go to the section on Investing. Within that section, go to the information on Bonds. Summarize the advice provided by one of the articles or videos on bonds. www.smartmoney.com 2. Go to www.investinginbonds.com. Click on "Learn More," then "Buying and Selling Bonds," then "Investor's Checklist." Answer the basic questions and review the perspective of each question. www.investinginbonds.com After completing your review, carefully consider whether any of your financial goals could be met with bond investing. Indicate the bond type (Treasury, Corporate, Municipal, Government Agency) and maturity. Use Bonds? (Yes or No) Type of Bond Maturity (Years) Short-Term Goals Credit Cards Other Debt Arrears Intermediate-Term Goals Mazda Subaru Own Business Long-Term Goals House Boat Savings 3. Consider the suitability of the following bond investment strategies for your financial situation. Enter your conclusions in the second column. Strategy to Invest in Bonds 1. Interest Rate Strategy 2. Passive Strategy 3. Maturity Matching Strategy Opinion Reasoning (Factoring in Risk Exposure) 4. Review your personal cash flow statement. If you decide bonds are a good investment, allocate money for them. Personal Cash Flow Statement Cash Inflows Disposable (after-tax) income Interest on deposits Dividend payments Other Total Cash Inflows Cash Outflows Rent/Mortgage Cable TV Electricity and water Telephone Groceries Health care insurance and expenses Clothing Car expenses (insurance, maintenance, and gas) Recreation Cell Phone Restaurants Vacations Other Total Cash Outflows Net Cash Flows Decisions 1. Describe your rationale for investing or not investing in bonds. 2. If you decide to invest in bonds, what strategy will you use? This Month $2,400 $50 $20 $0 $2,470 $200 $60 $40 $10 $40 $160 $50 $500 $200 $130 $200 $0 $500 $2,090 $380 Name: Date: Chapter 17 Building Your Own Financial Plan Goals 1. Determine if and how you could benefit from investing in mutual funds. 2. If you decide to invest in mutual funds, choose the best types of funds for your needs. Analysis 1. At www.smartmoney.com, click the tab marked \"Invest.\" Under the heading \"Mutual Funds" select "Top Mutual Funds" and review the performance of funds for various categories. Choose two or three that meet your goal needs. Enter your findings in the following chart: www.smartmoney.com Type of Stock Mutual Funds Growth Capital Appreciation Equity Income Balance Growth and Income Sector Technology Index International Type of Bond Mutual Fund Treasury Ginnie Mae Corporate Bond High-Yield Bond Municipal Bond Index Bond International Bond Suitable Investment Option? Reasoning Suitable Investment Option? Reasoning 2. Return to www.smartmoney.com. Click the name of a fund you identified as meeting one or more of your goals. Answer the following questions and note other pertinent information about your fund. www.smartmoney.com a. On the "Risk" tab, what is the risk versus return relationship for your fund? b. On the "Return" tab, how does your fund's return compare to the return for its category over various time spans? c. On the "Expenses" tab, what are the expenses for your fund? d. How do your fund's expenses compare to the expenses for this category? e. Under the "Purchase Info" tab, is this fund open to new investors? f. If so, what is the minimum purchase? g. What is the minimum subsequent purchase? h. Under the "Portfolio" tab, how long has the fund manager been in place? Decisions 1. What is your decision regarding mutual funds? Explain why they are or are not a good investment for you? 2. If you decide to invest in mutual funds, what types of funds will you select? Why? Name: Date: Chapter 18 Building Your Own Financial Plan Goals 1. Ensure that your current asset allocation is appropriate. 2. Determine a plan for future allocation. Analysis 1. Enter information about your current investments in the following chart. (If you input this) information in the Excel template, the software will create a pie chart showing the market value of each investment.) Type of Investment Checking Account Savings Account CDs Money Market Mutual Fund - Large Cap Mutual Fund - Small Cap Mutual Fund - International Mutual Fund - Corporate Bonds Mutual Fund - Government Bonds REITs Large Cap Stock Small Cap Stock International Stock (ADRs) Equity in Home Other Real Estate Holdings Investment in Collectibles (e.g., Antiques, Firearms, Art) Other Other Other Other Total Investments MARKET VALUE OF INVESTMENTS GOAL(S) MET BY PERCENTAGE OF INVESTMENT AND DURATION FUNDS ALLOCATED TO OF GOAL THIS INVESTMENT * 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% $0 *To compute the percentage manually, take the dollar amount in the "Market Value Investment" column for each type of investment and divide it by the dollar amount for "Total Investments." Checking Account Savings Account CDs Money Market Mutual Fund - Large Cap Mutual Fund - Small Cap Mutual Fund - International Mutual Fund - Corporate Bonds Mutual Fund - Government Bonds R EITs Large Cap Stock Small Cap Stock International Stock (ADRs) Equity in Home Other Real Estate Holdings Investment in Collectibles (e.g., Antiques, Firearms, Art) Other Other Other Other 2. How would you rate your portfolio, (i.e., conservative, moderate, or aggressive)? 3. Does the risk level of your portfolio correspond to your personal risk tolerance? If it does not correspond, what actions will you need to take to align the risk level of your portfolio and your own personal risk tolerance? Decisions 1. Is your current asset allocation appropriate? If not, what changes will you make to better diversify your investments? 2. As you make additional investments in the future, how do you plan on allocating your assets? Name: Date: Chapter 19 Building Your Own Financial Plan Goals 1. Ensure an adequate financial position at the time you retire. 2. Reduce the tax liability on your present income. Analysis 1. Go to www.msn.com and click on the tab "Money." Select "Personal Finance, " then "Retirement." Locate the area named "Tools." Use the calculator to determine the amount of savings you will need to retire. www.msn.com 2. Determine how much money you must save per year, the return you must earn, and the savings period to meet your goal for retirement savings. Experiment with different inputs in the following calculator in the Excel software. Future Value of an Annuity Payment per Period Number of Periods Interest Rate per Period Future Value Personal Cash Flow Statement Cash Inflows Disposable (after-tax) income Interest on deposits Dividend payments Other Total Cash Inflows Cash Outflows Rent/Mortgage Cable TV Electricity and water Telephone Groceries Health care insurance and expenses Clothing Car expenses (insurance, maintenance, and gas) Recreation Cell Phone Restaurants Vacations Other Total Cash Outflows Net Cash Flows This Month $2,400 50 20 0 $2,470 $200 60 40 10 40 160 50 500 200 130 200 0 500 2,090 $380 3. When examining retirement plans, keep in mind that tax benefits are important criteria. In the right-hand column of the following table, indicate how suitable the plan options are for you. Type of Retirement Plan Employer's Retirement Plan Traditional IRA or Roth IRA Benefits Employee contributions are taxdeferred; employer may match contributions Contribute up to $4,000 per year (tax-deferred) to a traditional IRA. Alternatively, contribute up to $4,000 annually to a Roth IRA after taxes; the withdrawal at retirement will not be taxed. Annuities Contribute money to an annuity to supplement any other retirement plan. The only tax advantage is that any income earned on the investment is not taxed until withdrawal at retirement. Suitability 4. Use the 401(k) planner template to see how your savings can grow. Excel will present a complete analysis based on your input in the below table. 401(k) Planner 401(k) Contribution per paycheck 401(k) Employer match per paycheck Paychecks per year (12, 24, 26, and 52) Expected annual rate of return Age as of the end of this tax year Anticipated retirement age Current value of 401(k) Date (the "as of" date for the current value) Enter the date of the year end Marginal tax rate (State plus Federal) Tax Deferred 401(k) Plan Growth Age 0 0 0 0 Taxable Savings Plan Growth Estimated 401(k) Value $0 $0 $0 $0 Age 0 0 0 0 Pre-Tax Retirement Income Estimated Savings Value $0 $0 $0 $0 Pre-Tax Retirement Income From retirement age to 90 year