Problem Set 1
(Note: Some of these problems
require the use of the time value of money tables in the Chapter 1 Appendix).
1. Ben
Collins plans to buy a house for $65,000. If that real estate property is
expected to increase in value 5 percent each year, what would its approximate
value be seven years from now?
2.
At an annual interest rate of five percent, how long would it take for
your savings to double?
3. In the mid-1990s, selected
automobiles had an average cost of $12,000. The average cost of those same
motor vehicles is now $20,000. What was the rate of increase for this item
between the two time periods?
4. A
family spends $28,000 a year for living expenses. If prices increase by 4
percent a year for the next three years, what amount will the family need for
its living expenses?
5. What
would be the yearly earnings for a person with $6,000 in savings at an annual
interest rate of 5.5 percent?
6. Elaine
Romberg prepares her own income tax return each year. A tax preparer would
charge her $60 for this service. Over a period of 10 years, how much does
Elaine gain from preparing her own tax return?
Assumes she can earn 3 percent on her savings.
7. Tran Lee plans
to set aside $1,800 a year for the next six years, earning 4 percent. What would be the future value of this
savings amount?
8. If you borrow $8,000 with a 5 percent
interest rate to be repaid in five equal payments at the end of the next five
years, what would be the amount of each payment? (Note: Use the present value
of an annuity table in the
Chapter 1 Appendix.)
9. Based
on the following data, compute the total assets, total liabilities, and net
worth.
Liquid assets, $3,670 Household assets,
$89,890
Investment assets, $8,340 Long-term
liabilities, $76,230
Current liabilities, $2,670
10.Which of the following employee benefits has the greater value? Use the
formula given in the “Financial Planning Calculations” – “Tax-Equivalent
Employee Benefits” box found in Chapter 2 to compare these benefits. (Assume a
28 percent tax rate.)
A nontaxable pension contribution of $4,300
or the use of a company car with a taxable value of $6,325.
