Homework 3 – FCS 3450 Fall
1. Jenny Franklin estimates that as a result of completing her master’s degree, she will earn $7,000 a year more for the next 40 years.
a. What would be the total amount of these additional earnings?
b. What would be the future value of these additional earnings based on an annual interest rate of 6 percent?
2. During a job interview, Pam Thompson is offered a salary of $28,000. The company gives annual raises of 6 percent. What would be Pam’s salary during her fifth year on the job?
3. Calculate the future value of a retirement account in which you deposit $2,000 a year for 30 years with an annual interest rate of 7 percent.
4. Which of the following employee benefits has the greater value? (Assume a 28 percent tax rate.)
a. A nontaxable pension contribution of $4,300 or the use of a company car with a taxable value of $6,325.
b. A life insurance policy with a taxable value of $450 or a nontaxable increase in health insurance coverage valued at $340.
TRUE/FALSE
5. Assets represent amounts owed to others that must be paid within the next year.
6. Spending less than your income will increase net worth.
7. A budget deficit exists when actual spending exceeds projected spending.
8. An example of a liquid asset would be
- A home
- An automobile
- A checking account
- A retirement account
9. Based on the procedures presented in the chapter, prepare your current personal balance sheet
10. Based on the following data, compute the total assets, total liabilities, and net worth.
Liquid assets, $4,670 Household assets, $93,780
Investment assets, $14,350 Long-term liabilities, $76,230
Current liabilities, $2,670
11. Use the following items to prepare a balance sheet and a cash flow statement. Determine the total assets, total liabilities, net worth, total cash inflows, and total cash outflows.
Rent for the month, $650 / Monthly take-home salary, $1,950Cash in checking account, $450 / Savings account balance, $1,890
Spending for food, $345 / Balance of educational loan, $2,160
Current value of automobile, $7,800 / Telephone bill paid for month, $65
Credit card balance, $235 / Loan payment, $80
Auto insurance, $230 / Household possessions, $3,400
Stereo equipment, $2,350 / Payment for electricity, $90
Lunches/parking at work, $180 / Donations to church, $70
Home computer, $1,500 / Value of stock investment, $860
Clothing purchase, $110 / Restaurant spending, $130
12. Carl Lester has liquid assets of $2,400, tangible assets of $3,200, investment assets of $1,000, current liabilities of $1,800, long term liabilities of $2,200, income of $3,500, total expenses of $2,800.
a. What is his basic liquidity ratio?
b. What is the liquidity ratio?
c. What is the debt-to-asset ratio?
13. Use future value and present value calculations (see tables in Sec1e of my overheads) to determine the following.
a. The future value of a $500 savings deposit after eight years at an annual interest rate of 3 percent.
b. The future value of saving $1,500 a year for five years at an annual interest rate of 4 percent.
c. The present value of a $2,000 savings account that will earn 3 percent interest for four years.
14. Kara George received a $6,000 gift for graduation from her uncle. If she deposits the entire amount in an account paying 3 percent, what will be the value of this gift in 15 years?
15. If the CPI for 1976 is 56.9 and the CPI for 2006 is 201.6, what is the rate of inflation between 1976 and 2006?
16. What is the supply shock we talked about in class (Wall Street Journal articles)? Name four ways that shock impacts the economy.