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Their total
liabilities equal $26,000. What is their net worth? (Show all work.) (Points : 10)
Solution:
Liquid Assets
a)
Inflation Rate, r = 5%
Period, n = 20 years
Present Value of earnings (PV) = $74,000
Calculating the future value of the income that needs to be earned by Mr. Smith
adjusted for inflation.
Future required amount = PV x (1+r)^n
Thus Future Value = $196,344.03
Thus Mr. Smith needs to earn $196,344.03, so as to just make his ends meet.
b)
Calculating Annuity Payment
Future Value (FV) = $2,000,000
Period, n = 35 years
Rate = 8%
Annuity payment on future value = FV x r / ((1+r)^n-1)
c)
Annuity Payment = $160,000
Period, n = 30 years
Rate, r = 4%
Present Value of Annuity = Payment x (1-(1+r)^-n)/r
Present Value of Annuity = ($2,766,725.33)
Flemings will need $2,766,725.33 at their retirement so that they can take out
$160,000 for 30 years.
d)
Future Value = $2,500,000
Period, n = 30
Rate = 7%
Annuity payment on future value = FV x r / ((1+r)^n-1)
Annuity = ($26,466.01)
Hamptons needs to save $26,466.03 so as to have $2,500,000 after 30 years.
If anyone receive the proceeds under a life insurance contract as a beneficiary due
to the death of the insured person, the benefits are not includable in gross income
and do not have to be reported. Also birthday of cash are also not included in gross
income.
Salary = $32,000
Interest = $25
Dividends = $5,500
Alimony = $24,000
Taxable Gross Income = 32000 + 25 + 5500 + 24000
Taxable Gross Income = $61,525
Case - I
Annual Payment = $3,000
Period, n = 25 years
Rate = 10%
Total Future value of the Fund = 3,000 x (1.1^24 + 1.1^23 + 1.1^22 + . +
1.1^2 + 1.1^1 + 1.1^0)
Total Future value of the Fund = $295,041.18
Case II
Initial Payment = $4,000
Annual Payment = $2,000
Period, n = 15 years
Rate = 10%
Total Future value of the Fund = 4,000 x 1.1^14 + 2,000 x (1.1^14 + 1.1^13 +
1.1^12 + . + 1.1^2 + 1.1^1 + 1.1^0)
Total Future value of the Fund = $78,734.96
When a credit card is lost or stolen, federal banking laws state that the cardholder is
not liable for any fraudulent charges if the loss or theft is reported before that card
is used. If reported after the card is used, the cardholders maximum liability is $50.
Thus with this principle in place
Maggie has to pay $50 for each of VISA, AMEX and Discover and $25 for MaterCard
Thus total payment = $175