Chapter 3 and 4 Homework

  1. Kathryn Berry, a freshman at the University of Utah, has some financial questions for the next three years of school and beyond.
  2. If Kathryn’s tuition, fees, and expenditures for books this year total $5,000, what will they be during her senior year (three years from now), assuming a cost rise of 6% annually?
  3. What is the future value of $400 in two years that earns 5%?
  4. What is the future value of $1,200 saved each year for 10 years earning 7%?
  5. How much would a person need to deposit today with a 5% interest rate to have $2,000 in 3 years?
  6. A person is offered a gift of $5,000 now or $8,000 five years from now. If such funds could be expected to earn 8% which is the best deal?
  7. Art Williams is in the 27% federal marginal tax bracket and pays an additional 8% in taxes to the state of New Jersey. Art currently has more than $20,000 invested in various corporate bonds earning differing amounts of taxable interest: $10,000 in ABC earning 9.0%, $5,000 in DEF earning 8.2%, $3,000 in GHI earning 7.8%, and $2,000 in JKL earning 7.1%. His stockbroker has suggested that Art consider each investment individually to determine what he should keep and what he should change to tax-exempt municipal bonds. The municipal bonds are paying 5.2%. Which investments should he keep and which should he re-invest?

Identify each of the following items as either taxable income or an exclusion from taxable income for Bob and Ellen Smithfield:

  1. Bob earns $45,000 annually
  2. Bob receives a $1,000 bonus from his employer.
  3. Ellen receives $40,000 in commissions from her work
  4. Ellen receives $300 in monthly child support.
  5. Bob pays $200 each month in alimony.
  6. Bob contributes $2,000 to his retirement account.
  7. Ellen inherits a car from her aunt that has a fair market value of $3,000
  8. The Smithfields receive a $5,000 gift from Bob’s mother