Financial Management Accounting

Wake Up and Smell the Coffee

Class Case #3
October 13, 2018

Submitted to:
Felix D. Cena, CPA, PhD

Submitted by:
Elan Jane Esteban
Hanah Feria
 1. Based on the information provided in table 1, if the Halls continue making minimum
payments on their outstanding debts, how much money will they have left for all other
expenses?

Car Payment
Loan 5,000.00
Periods 24.00
208.33
% 0.0599
Interest 12.48

Principal 208.33
Interest 12.48
Monthly Payment 220.81

College Loans
Loan 12,000.00
Periods 24.00
500.00
% 0.0525
Interest 26.25

Principal 500.00
Interest 26.25
Monthly Payment 526.25

Credit Card
Loan 10,000.00
% 3%
300.00

Car Payment 220.81

College Loans 526.25
Credit Card 300.00
Rent 1,200.00
Total Monthly Expenses 2,247.06
 Marty Yearly Salary 50,000.00
after Tax Annual Salary (1-Tax Rate
12
after Tax 50,000(1-28%)
12
after Tax 36,000.00
12
after Tax monthly Salary 3,000.00

Laura Yearly Salary 25,000.00

after Tax Annual Salary (1-Tax Rate
12
after Tax 25,000(1-28%)
12
after Tax 18,000.00
12
after Tax monthly Salary 1,500.00

Marty 3,000.00
Laura 1,500.00
Total Monthly Take Home Pay 4,500.00

Total Monthly Take Home Pay 4,500.00

Total Monthly Expenses 2,247.06
Remaining Balance for all other Expenses 2,252.94

Marty and Laura will have a $3,000 and $1,500 salary monthly net of 28% tax, respectively.
After paying their monthly expenses, they will have a combined savings of $2,252.94.
 2. How much money will Laura and Marty have to deposit each month (beginning one month after she is born and ending
when she turns 18) in order to have enough saved up for their child’s education. Assume that the yield on investments is 8%
per year, college expenses increase at the rate of 4% per year, and that their child will enter college when he or she turns 18
and will complete the degree in 4 years.

College Expenses 4% Interest 8% Yield

Year 0 FV = PV * FV Factor Year 0 PV = PV * PV Factor
= 20,000 * 0 = 40,516.40 * 0
= 0.00 = 0.00

Year 1 FV = PV * FV Factor Year 1 PV = PV * FV Factor

= 20,000 * 2.02582 = 42,137.00 *1.08
= 40,516.40 = 45,507.96

Year 2 FV = PV * FV Factor Year 2 PV = PV * FV Factor

= 20,000 * 2.10685 = 43,822.40 *1.16640
= 42,137.00 = 51,009.27

Year 3 FV = PV * FV Factor Year 3 PV = PV * FV Factor

= 20,000 * 2.19112 = 45,575.40 * 1.25971
= 43,822.40 = 57,411.79

Year 4 FV = PV * FV Factor
= 20,000 * 2.27877
= 45,575.40

TOTAL = 172,051.20 TOTAL = 153,929.02

 FV
PMT =
(1+r)n-1
( )
r

153,929.02
PMT =
(1+.0067)216-1
( )
0.0067

153,929.02
PMT =
3.20
( )
0.0067

153,929.02
PMT =
477.70

PMT = 322.23

In order for Marty and Laura to have enough money for their child’s college education,
they have to save $ 322.23 per month for the next 18 years starting a month after their child is
born.
3. How much money will the Hall’s have to set aside each month so as to have enough
saved up for a down payment on the $140,000 house within 12 months? Assume that
the closing costs amount to 2% of the loan balance and that the down payment is 10%
of the price.

Cost of the New House 140,000.00

DP Rate 10%
Down Payment 14,000.00

Cost of the New House 140,000.00

Down Payment 14,000.00
Loan Amount after DP 126,000.00
Closing Costs % 2%
Closing Costs 2,520.00

Down Payment 14,000.00

Closing Costs 2,520.00
Total Money Needed 16,520.00
Annual Rate of ROI 8%
No. of Months 12.00

Marty 3,000.00
Laura 1,500.00
Total Monthly Take Home Pay 4,500.00

FV
PMT =
(1+r)n-1
( )
r

16,520.00
PMT =
(1+.0067)12-1
( )
0.0067

16,520.00
PMT =
0.08
( )
0.0067

16,520.00
PMT =
12.45

PMT = 1,326.67

So as to have enough money saved up for a down payment and closing costs after
a year, the couple should have a monthly contribution of $1,326.67.

4. If the interest rate on a 30-year mortgage is at 5% per year when the Hall’s purchase
their house, how much will their mortgage (monthly) payment be? Ignore insurance
and taxes.

Cost of House 140,000.00

Down Payment 14,000.00
Mortgage 126,000.00

rate 5%/12
PMT rate 0.42%
 r(1+r)n
PMT = P
(1+r)n-1
.0042*(1+.0042)360
PMT = 126,000.00
(1+.0042)360-1
0.02
PMT = 126,000.00
3.52

PMT = 126,000.00 0.01

PMT = 676.40

The couple’s monthly payment for their 30-year mortgage is $676.40. The said amount is
computed with 5% annual rate already.
 5. Construct an amortization schedule for the 5%, 30-year mortgage.
MONTH BEGINNING BALANCE PAYMENT INTEREST PRINCIPAL ENDING BALANCE

Calculated Monthly Monthly Interest on Principal Amount @ Payment -

Amount in Debt Beg Bal - Principal
Installment 5% annually Interest

1 126,000.00 (676.40) 525.00 151.40 125,848.60

2 125,848.60 (676.40) 524.37 152.03 125,696.58
3 125,696.58 (676.40) 523.74 152.66 125,543.92
4 125,543.92 (676.40) 523.10 153.30 125,390.62
5 125,390.62 (676.40) 522.46 153.94 125,236.69
6 125,236.69 (676.40) 521.82 154.58 125,082.11
7 125,082.11 (676.40) 521.18 155.22 124,926.89
8 124,926.89 (676.40) 520.53 155.87 124,771.03
9 124,771.03 (676.40) 519.88 156.52 124,614.51
10 124,614.51 (676.40) 519.23 157.17 124,457.34
11 124,457.34 (676.40) 518.57 157.83 124,299.52
12 124,299.52 (676.40) 517.91 158.49 124,141.04
13 124,141.04 (676.40) 517.25 159.15 123,981.90
14 123,981.90 (676.40) 516.59 159.81 123,822.09
15 123,822.09 (676.40) 515.93 160.47 123,661.62
16 123,661.62 (676.40) 515.26 161.14 123,500.49
17 123,500.49 (676.40) 514.59 161.81 123,338.68
18 123,338.68 (676.40) 513.91 162.49 123,176.19
19 123,176.19 (676.40) 513.23 163.17 123,013.03
20 123,013.03 (676.40) 512.55 163.85 122,849.19
21 122,849.19 (676.40) 511.87 164.53 122,684.67
22 122,684.67 (676.40) 511.19 165.21 122,519.46
23 122,519.46 (676.40) 510.50 165.90 122,353.56
24 122,353.56 (676.40) 509.81 166.59 122,186.97
25 122,186.97 (676.40) 509.11 167.29 122,019.69
26 122,019.69 (676.40) 508.42 167.98 121,851.71
27 121,851.71 (676.40) 507.72 168.68 121,683.03
28 121,683.03 (676.40) 507.01 169.39 121,513.65
29 121,513.65 (676.40) 506.31 170.09 121,343.56
30 121,343.56 (676.40) 505.60 170.80 121,172.76
31 121,172.76 (676.40) 504.89 171.51 121,001.25
32 121,001.25 (676.40) 504.17 172.23 120,829.03
33 120,829.03 (676.40) 503.45 172.95 120,656.09
34 120,656.09 (676.40) 502.73 173.67 120,482.43
35 120,482.43 (676.40) 502.01 174.39 120,308.04
36 120,308.04 (676.40) 501.28 175.12 120,132.93
37 120,132.93 (676.40) 500.55 175.85 119,957.09
38 119,957.09 (676.40) 499.82 176.58 119,780.51
39 119,780.51 (676.40) 499.09 177.31 119,603.20
40 119,603.20 (676.40) 498.35 178.05 119,425.16
41 119,425.16 (676.40) 497.60 178.80 119,246.37
42 119,246.37 (676.40) 496.86 179.54 119,066.83
43 119,066.83 (676.40) 496.11 180.29 118,886.55
44 118,886.55 (676.40) 495.36 181.04 118,705.51
45 118,705.51 (676.40) 494.61 181.79 118,523.72
46 118,523.72 (676.40) 493.85 182.55 118,341.18
47 118,341.18 (676.40) 493.09 183.31 118,157.87
48 118,157.87 (676.40) 492.32 184.08 117,973.80
49 117,973.80 (676.40) 491.56 184.84 117,788.96
50 117,788.96 (676.40) 490.79 185.61 117,603.35
51 117,603.35 (676.40) 490.01 186.39 117,416.97
52 117,416.97 (676.40) 489.24 187.16 117,229.81
53 117,229.81 (676.40) 488.46 187.94 117,041.88
54 117,041.88 (676.40) 487.67 188.73 116,853.16
55 116,853.16 (676.40) 486.89 189.51 116,663.65
56 116,663.65 (676.40) 486.10 190.30 116,473.35
57 116,473.35 (676.40) 485.31 191.09 116,282.26
58 116,282.26 (676.40) 484.51 191.89 116,090.38
59 116,090.38 (676.40) 483.71 192.69 115,897.69
60 115,897.69 (676.40) 482.91 193.49 115,704.20
61 115,704.20 (676.40) 482.10 194.30 115,509.91
62 115,509.91 (676.40) 481.29 195.11 115,314.80
63 115,314.80 (676.40) 480.48 195.92 115,118.89
64 115,118.89 (676.40) 479.66 196.74 114,922.15
65 114,922.15 (676.40) 478.84 197.56 114,724.60
66 114,724.60 (676.40) 478.02 198.38 114,526.22
67 114,526.22 (676.40) 477.19 199.21 114,327.02
68 114,327.02 (676.40) 476.36 200.04 114,126.99
69 114,126.99 (676.40) 475.53 200.87 113,926.12
70 113,926.12 (676.40) 474.69 201.71 113,724.42
71 113,724.42 (676.40) 473.85 202.55 113,521.88
72 113,521.88 (676.40) 473.01 203.39 113,318.49
73 113,318.49 (676.40) 472.16 204.24 113,114.25
74 113,114.25 (676.40) 471.31 205.09 112,909.17
75 112,909.17 (676.40) 470.45 205.95 112,703.23
76 112,703.23 (676.40) 469.60 206.80 112,496.43
77 112,496.43 (676.40) 468.74 207.66 112,288.77
78 112,288.77 (676.40) 467.87 208.53 112,080.24
79 112,080.24 (676.40) 467.00 209.40 111,870.85
80 111,870.85 (676.40) 466.13 210.27 111,660.58
81 111,660.58 (676.40) 465.25 211.15 111,449.44
82 111,449.44 (676.40) 464.37 212.03 111,237.42
83 111,237.42 (676.40) 463.49 212.91 111,024.51
84 111,024.51 (676.40) 462.60 213.80 110,810.72
85 110,810.72 (676.40) 461.71 214.69 110,596.04
86 110,596.04 (676.40) 460.82 215.58 110,380.46
87 110,380.46 (676.40) 459.92 216.48 110,163.98
88 110,163.98 (676.40) 459.02 217.38 109,946.60
89 109,946.60 (676.40) 458.11 218.29 109,728.32
90 109,728.32 (676.40) 457.20 219.20 109,509.12
91 109,509.12 (676.40) 456.29 220.11 109,289.02
92 109,289.02 (676.40) 455.37 221.03 109,067.99
93 109,067.99 (676.40) 454.45 221.95 108,846.05
94 108,846.05 (676.40) 453.53 222.87 108,623.18
95 108,623.18 (676.40) 452.60 223.80 108,399.38
96 108,399.38 (676.40) 451.66 224.74 108,174.65
97 108,174.65 (676.40) 450.73 225.67 107,948.98
98 107,948.98 (676.40) 449.79 226.61 107,722.37
99 107,722.37 (676.40) 448.84 227.56 107,494.82
100 107,494.82 (676.40) 447.90 228.50 107,266.32
101 107,266.32 (676.40) 446.94 229.46 107,036.87
102 107,036.87 (676.40) 445.99 230.41 106,806.46
103 106,806.46 (676.40) 445.03 231.37 106,575.09
104 106,575.09 (676.40) 444.06 232.34 106,342.76
105 106,342.76 (676.40) 443.09 233.31 106,109.46
106 106,109.46 (676.40) 442.12 234.28 105,875.18
107 105,875.18 (676.40) 441.15 235.25 105,639.94
108 105,639.94 (676.40) 440.17 236.23 105,403.71
109 105,403.71 (676.40) 439.18 237.22 105,166.49
110 105,166.49 (676.40) 438.19 238.21 104,928.29
111 104,928.29 (676.40) 437.20 239.20 104,689.10
112 104,689.10 (676.40) 436.20 240.20 104,448.91
113 104,448.91 (676.40) 435.20 241.20 104,207.72
114 104,207.72 (676.40) 434.20 242.20 103,965.52
115 103,965.52 (676.40) 433.19 243.21 103,722.31
116 103,722.31 (676.40) 432.18 244.22 103,478.10
117 103,478.10 (676.40) 431.16 245.24 103,232.86
118 103,232.86 (676.40) 430.14 246.26 102,986.60
119 102,986.60 (676.40) 429.11 247.29 102,739.32
120 102,739.32 (676.40) 428.08 248.32 102,491.00
121 102,491.00 (676.40) 427.05 249.35 102,241.65
122 102,241.65 (676.40) 426.01 250.39 101,991.26
123 101,991.26 (676.40) 424.96 251.44 101,739.83
124 101,739.83 (676.40) 423.92 252.48 101,487.35
125 101,487.35 (676.40) 422.86 253.54 101,233.82
126 101,233.82 (676.40) 421.81 254.59 100,979.23
127 100,979.23 (676.40) 420.75 255.65 100,723.59
128 100,723.59 (676.40) 419.68 256.72 100,466.87
129 100,466.87 (676.40) 418.61 257.79 100,209.09
130 100,209.09 (676.40) 417.54 258.86 99,950.23
131 99,950.23 (676.40) 416.46 259.94 99,690.29
132 99,690.29 (676.40) 415.38 261.02 99,429.28
133 99,429.28 (676.40) 414.29 262.11 99,167.17
134 99,167.17 (676.40) 413.20 263.20 98,903.97
135 98,903.97 (676.40) 412.10 264.30 98,639.68
136 98,639.68 (676.40) 411.00 265.40 98,374.28
137 98,374.28 (676.40) 409.89 266.51 98,107.78
138 98,107.78 (676.40) 408.78 267.62 97,840.16
139 97,840.16 (676.40) 407.67 268.73 97,571.44
140 97,571.44 (676.40) 406.55 269.85 97,301.59
141 97,301.59 (676.40) 405.42 270.98 97,030.62
142 97,030.62 (676.40) 404.29 272.11 96,758.51
143 96,758.51 (676.40) 403.16 273.24 96,485.28
144 96,485.28 (676.40) 402.02 274.38 96,210.91
145 96,210.91 (676.40) 400.88 275.52 95,935.39
146 95,935.39 (676.40) 399.73 276.67 95,658.73
147 95,658.73 (676.40) 398.58 277.82 95,380.91
148 95,380.91 (676.40) 397.42 278.98 95,101.93
149 95,101.93 (676.40) 396.26 280.14 94,821.80
150 94,821.80 (676.40) 395.09 281.31 94,540.49
151 94,540.49 (676.40) 393.92 282.48 94,258.02
152 94,258.02 (676.40) 392.74 283.66 93,974.36
153 93,974.36 (676.40) 391.56 284.84 93,689.53
154 93,689.53 (676.40) 390.37 286.03 93,403.50
155 93,403.50 (676.40) 389.18 287.22 93,116.29
156 93,116.29 (676.40) 387.98 288.42 92,827.88
157 92,827.88 (676.40) 386.78 289.62 92,538.27
158 92,538.27 (676.40) 385.58 290.82 92,247.45
159 92,247.45 (676.40) 384.36 292.04 91,955.42
160 91,955.42 (676.40) 383.15 293.25 91,662.17
161 91,662.17 (676.40) 381.93 294.47 91,367.70
162 91,367.70 (676.40) 380.70 295.70 91,072.00
163 91,072.00 (676.40) 379.47 296.93 90,775.08
164 90,775.08 (676.40) 378.23 298.17 90,476.91
165 90,476.91 (676.40) 376.99 299.41 90,177.50
166 90,177.50 (676.40) 375.74 300.66 89,876.85
167 89,876.85 (676.40) 374.49 301.91 89,574.94
168 89,574.94 (676.40) 373.23 303.17 89,271.77
169 89,271.77 (676.40) 371.97 304.43 88,967.34
170 88,967.34 (676.40) 370.70 305.70 88,661.64
171 88,661.64 (676.40) 369.42 306.98 88,354.67
172 88,354.67 (676.40) 368.14 308.26 88,046.42
173 88,046.42 (676.40) 366.86 309.54 87,736.89
174 87,736.89 (676.40) 365.57 310.83 87,426.06
175 87,426.06 (676.40) 364.28 312.12 87,113.94
176 87,113.94 (676.40) 362.97 313.43 86,800.52
177 86,800.52 (676.40) 361.67 314.73 86,485.79
178 86,485.79 (676.40) 360.36 316.04 86,169.76
179 86,169.76 (676.40) 359.04 317.36 85,852.40
180 85,852.40 (676.40) 357.72 318.68 85,533.72
181 85,533.72 (676.40) 356.39 320.01 85,213.72
182 85,213.72 (676.40) 355.06 321.34 84,892.38
183 84,892.38 (676.40) 353.72 322.68 84,569.71
184 84,569.71 (676.40) 352.37 324.03 84,245.68
185 84,245.68 (676.40) 351.02 325.38 83,920.31
186 83,920.31 (676.40) 349.67 326.73 83,593.58
187 83,593.58 (676.40) 348.31 328.09 83,265.50
188 83,265.50 (676.40) 346.94 329.46 82,936.04
189 82,936.04 (676.40) 345.57 330.83 82,605.21
190 82,605.21 (676.40) 344.19 332.21 82,273.01
191 82,273.01 (676.40) 342.80 333.60 81,939.41
192 81,939.41 (676.40) 341.41 334.99 81,604.43
193 81,604.43 (676.40) 340.02 336.38 81,268.06
194 81,268.06 (676.40) 338.62 337.78 80,930.28
195 80,930.28 (676.40) 337.21 339.19 80,591.09
196 80,591.09 (676.40) 335.80 340.60 80,250.49
197 80,250.49 (676.40) 334.38 342.02 79,908.48
198 79,908.48 (676.40) 332.95 343.45 79,565.03
199 79,565.03 (676.40) 331.52 344.88 79,220.16
200 79,220.16 (676.40) 330.08 346.32 78,873.85
201 78,873.85 (676.40) 328.64 347.76 78,526.09
202 78,526.09 (676.40) 327.19 349.21 78,176.89
203 78,176.89 (676.40) 325.74 350.66 77,826.23
204 77,826.23 (676.40) 324.28 352.12 77,474.11
205 77,474.11 (676.40) 322.81 353.59 77,120.52
206 77,120.52 (676.40) 321.34 355.06 76,765.47
207 76,765.47 (676.40) 319.86 356.54 76,408.93
208 76,408.93 (676.40) 318.37 358.03 76,050.90
209 76,050.90 (676.40) 316.88 359.52 75,691.38
210 75,691.38 (676.40) 315.38 361.02 75,330.37
211 75,330.37 (676.40) 313.88 362.52 74,967.85
212 74,967.85 (676.40) 312.37 364.03 74,603.82
213 74,603.82 (676.40) 310.85 365.55 74,238.28
214 74,238.28 (676.40) 309.33 367.07 73,871.21
215 73,871.21 (676.40) 307.80 368.60 73,502.61
216 73,502.61 (676.40) 306.26 370.14 73,132.47
217 73,132.47 (676.40) 304.72 371.68 72,760.80
218 72,760.80 (676.40) 303.17 373.23 72,387.57
219 72,387.57 (676.40) 301.61 374.79 72,012.79
220 72,012.79 (676.40) 300.05 376.35 71,636.45
221 71,636.45 (676.40) 298.49 377.91 71,258.54
222 71,258.54 (676.40) 296.91 379.49 70,879.06
223 70,879.06 (676.40) 295.33 381.07 70,497.99
224 70,497.99 (676.40) 293.74 382.66 70,115.34
225 70,115.34 (676.40) 292.15 384.25 69,731.09
226 69,731.09 (676.40) 290.55 385.85 69,345.24
227 69,345.24 (676.40) 288.94 387.46 68,957.78
228 68,957.78 (676.40) 287.32 389.08 68,568.71
229 68,568.71 (676.40) 285.70 390.70 68,178.02
230 68,178.02 (676.40) 284.08 392.32 67,785.70
231 67,785.70 (676.40) 282.44 393.96 67,391.74
232 67,391.74 (676.40) 280.80 395.60 66,996.15
233 66,996.15 (676.40) 279.15 397.25 66,598.90
234 66,598.90 (676.40) 277.50 398.90 66,200.00
235 66,200.00 (676.40) 275.83 400.57 65,799.44
236 65,799.44 (676.40) 274.16 402.24 65,397.21
237 65,397.21 (676.40) 272.49 403.91 64,993.30
238 64,993.30 (676.40) 270.81 405.59 64,587.71
239 64,587.71 (676.40) 269.12 407.28 64,180.43
240 64,180.43 (676.40) 267.42 408.98 63,771.46
241 63,771.46 (676.40) 265.71 410.69 63,360.78
242 63,360.78 (676.40) 264.00 412.40 62,948.38
243 62,948.38 (676.40) 262.28 414.12 62,534.27
244 62,534.27 (676.40) 260.56 415.84 62,118.44
245 62,118.44 (676.40) 258.83 417.57 61,700.87
246 61,700.87 (676.40) 257.09 419.31 61,281.56
247 61,281.56 (676.40) 255.34 421.06 60,860.51
248 60,860.51 (676.40) 253.59 422.81 60,437.70
249 60,437.70 (676.40) 251.82 424.58 60,013.12
250 60,013.12 (676.40) 250.05 426.35 59,586.78
251 59,586.78 (676.40) 248.28 428.12 59,158.67
252 59,158.67 (676.40) 246.49 429.91 58,728.77
253 58,728.77 (676.40) 244.70 431.70 58,297.07
254 58,297.07 (676.40) 242.90 433.50 57,863.58
255 57,863.58 (676.40) 241.10 435.30 57,428.29
256 57,428.29 (676.40) 239.28 437.12 56,991.18
257 56,991.18 (676.40) 237.46 438.94 56,552.24
258 56,552.24 (676.40) 235.63 440.77 56,111.48
259 56,111.48 (676.40) 233.80 442.60 55,668.89
260 55,668.89 (676.40) 231.95 444.45 55,224.44
261 55,224.44 (676.40) 230.10 446.30 54,778.15
262 54,778.15 (676.40) 228.24 448.16 54,330.00
263 54,330.00 (676.40) 226.37 450.03 53,879.98
264 53,879.98 (676.40) 224.50 451.90 53,428.08
265 53,428.08 (676.40) 222.62 453.78 52,974.30
266 52,974.30 (676.40) 220.73 455.67 52,518.63
267 52,518.63 (676.40) 218.83 457.57 52,061.07
268 52,061.07 (676.40) 216.92 459.48 51,601.59
269 51,601.59 (676.40) 215.01 461.39 51,140.20
270 51,140.20 (676.40) 213.08 463.32 50,676.89
271 50,676.89 (676.40) 211.15 465.25 50,211.65
272 50,211.65 (676.40) 209.22 467.18 49,744.47
273 49,744.47 (676.40) 207.27 469.13 49,275.35
274 49,275.35 (676.40) 205.31 471.09 48,804.26
275 48,804.26 (676.40) 203.35 473.05 48,331.22
276 48,331.22 (676.40) 201.38 475.02 47,856.20
277 47,856.20 (676.40) 199.40 477.00 47,379.21
278 47,379.21 (676.40) 197.41 478.99 46,900.23
279 46,900.23 (676.40) 195.42 480.98 46,419.25
280 46,419.25 (676.40) 193.41 482.99 45,936.27
281 45,936.27 (676.40) 191.40 485.00 45,451.27
282 45,451.27 (676.40) 189.38 487.02 44,964.26
283 44,964.26 (676.40) 187.35 489.05 44,475.22
284 44,475.22 (676.40) 185.31 491.09 43,984.13
285 43,984.13 (676.40) 183.27 493.13 43,491.01
286 43,491.01 (676.40) 181.21 495.19 42,995.82
287 42,995.82 (676.40) 179.15 497.25 42,498.58
288 42,498.58 (676.40) 177.08 499.32 41,999.26
289 41,999.26 (676.40) 175.00 501.40 41,497.86
290 41,497.86 (676.40) 172.91 503.49 40,994.37
291 40,994.37 (676.40) 170.81 505.59 40,488.79
292 40,488.79 (676.40) 168.70 507.70 39,981.10
293 39,981.10 (676.40) 166.59 509.81 39,471.29
294 39,471.29 (676.40) 164.46 511.94 38,959.36
295 38,959.36 (676.40) 162.33 514.07 38,445.29
296 38,445.29 (676.40) 160.19 516.21 37,929.09
297 37,929.09 (676.40) 158.04 518.36 37,410.73
298 37,410.73 (676.40) 155.88 520.52 36,890.21
299 36,890.21 (676.40) 153.71 522.69 36,367.53
300 36,367.53 (676.40) 151.53 524.87 35,842.66
301 35,842.66 (676.40) 149.34 527.06 35,315.61
302 35,315.61 (676.40) 147.15 529.25 34,786.36
303 34,786.36 (676.40) 144.94 531.46 34,254.91
304 34,254.91 (676.40) 142.73 533.67 33,721.25
305 33,721.25 (676.40) 140.51 535.89 33,185.36
306 33,185.36 (676.40) 138.27 538.13 32,647.23
307 32,647.23 (676.40) 136.03 540.37 32,106.87
308 32,106.87 (676.40) 133.78 542.62 31,564.25
309 31,564.25 (676.40) 131.52 544.88 31,019.37
310 31,019.37 (676.40) 129.25 547.15 30,472.23
311 30,472.23 (676.40) 126.97 549.43 29,922.80
312 29,922.80 (676.40) 124.68 551.72 29,371.08
313 29,371.08 (676.40) 122.38 554.02 28,817.07
314 28,817.07 (676.40) 120.07 556.33 28,260.74
315 28,260.74 (676.40) 117.75 558.65 27,702.10
316 27,702.10 (676.40) 115.43 560.97 27,141.13
317 27,141.13 (676.40) 113.09 563.31 26,577.82
318 26,577.82 (676.40) 110.74 565.66 26,012.17
319 26,012.17 (676.40) 108.38 568.02 25,444.16
320 25,444.16 (676.40) 106.02 570.38 24,873.78
321 24,873.78 (676.40) 103.64 572.76 24,301.02
322 24,301.02 (676.40) 101.25 575.15 23,725.88
323 23,725.88 (676.40) 98.86 577.54 23,148.35
324 23,148.35 (676.40) 96.45 579.95 22,568.40
325 22,568.40 (676.40) 94.04 582.36 21,986.04
326 21,986.04 (676.40) 91.61 584.79 21,401.25
327 21,401.25 (676.40) 89.17 587.23 20,814.03
328 20,814.03 (676.40) 86.73 589.67 20,224.36
329 20,224.36 (676.40) 84.27 592.13 19,632.23
330 19,632.23 (676.40) 81.80 594.60 19,037.64
331 19,037.64 (676.40) 79.32 597.08 18,440.57
332 18,440.57 (676.40) 76.84 599.56 17,841.01
333 17,841.01 (676.40) 74.34 602.06 17,238.95
334 17,238.95 (676.40) 71.83 604.57 16,634.38
 335 16,634.38 (676.40) 69.31 607.09 16,027.30
336 16,027.30 (676.40) 66.78 609.62 15,417.68
337 15,417.68 (676.40) 64.24 612.16 14,805.53
338 14,805.53 (676.40) 61.69 614.71 14,190.82
339 14,190.82 (676.40) 59.13 617.27 13,573.56
340 13,573.56 (676.40) 56.56 619.84 12,953.72
341 12,953.72 (676.40) 53.97 622.43 12,331.30
342 12,331.30 (676.40) 51.38 625.02 11,706.28
343 11,706.28 (676.40) 48.78 627.62 11,078.66
344 11,078.66 (676.40) 46.16 630.24 10,448.43
345 10,448.43 (676.40) 43.54 632.86 9,815.57
346 9,815.57 (676.40) 40.90 635.50 9,180.07
347 9,180.07 (676.40) 38.25 638.15 8,541.93
348 8,541.93 (676.40) 35.59 640.81 7,901.12
349 7,901.12 (676.40) 32.92 643.48 7,257.65
350 7,257.65 (676.40) 30.24 646.16 6,611.49
351 6,611.49 (676.40) 27.55 648.85 5,962.65
352 5,962.65 (676.40) 24.84 651.56 5,311.10
353 5,311.10 (676.40) 22.13 654.27 4,656.83
354 4,656.83 (676.40) 19.40 657.00 3,999.84
355 3,999.84 (676.40) 16.67 659.73 3,340.11
356 3,340.11 (676.40) 13.92 662.48 2,677.63
357 2,677.63 (676.40) 11.16 665.24 2,012.39
358 2,012.39 (676.40) 8.38 668.02 1,344.38
359 1,344.38 (676.40) 5.60 670.80 673.59
360 673.59 (676.40) 2.81 673.59 -
TOTAL INTEREST 117,502.29

The total interest paid for the period of 360 months with an equal monthly payment of $676.40 is $117,502.29. Accumulatively,
they would end up paying $257,502.29 for a $140,000 house after 30 years.
 6. If the Hall’s want to have as much of an after-tax income when they retire as they
currently have, and assuming they live until they are 80 years old, how much money
should they set aside each month so as to have enough money accumulated in their
retirement nest egg? Assume that annual inflation rate is 4% per year for the whole
term, the investment return is 8% per year before and after retirement, and that their
tax rate is 28% throughout their life.

Marty 50,000.00
Laura 25,000.00
Combined Salary 75,000.00

Tax Rate 28%

Tax 21,000.00
After Tax Income 54,000.00

Inflation Rate 4%
Investment Yield 8%

Current Age 30.00

Retirement Age 65.00
Expected Life Span 80.00

Retirement Age 65.00

Current Age 30.00
Number of Years Until Retirement 35.00

Expected Life Span 80.00

Retirement Age 65.00
Number of Expected Years After Retirement 15.00

Annual Income Desired

= PV * (1+R)n
During Retirement
Annual Income Desired
= 54,000 * (1+4%)35
During Retirement
Annual Income Desired
= 213,088.81
During Retirement
 Age PV PV Factor 8% Income Needed
65 213,088.81
66 221,612.36 0.92593 205,197.53
67 230,476.85 0.85734 197,597.02
68 239,695.93 0.79383 190,277.82
69 249,283.76 0.73503 183,231.04
70 259,255.11 0.68058 176,443.85
71 269,625.32 0.63017 169,909.79
72 280,410.33 0.58349 163,616.62
73 291,626.74 0.54027 157,557.18
74 303,291.81 0.50025 151,721.73
75 315,423.49 0.46319 146,101.00
76 328,040.43 0.42888 140,689.98
77 341,162.04 0.39711 135,478.86
78 354,808.53 0.36770 130,463.09
79 369,000.87 0.34046 125,630.03
80 383,760.90 0.31524 120,976.79
2,394,892.34

FV
PMT =
(1+r)n-1
( )
r

2,394,892.34
PMT =
(1+.0067)420-1
( )
0.0067

2,394,892.34
PMT =
15.29
( )
0.0067

2,394,892.34
PMT =
2,282.47

PMT = 1,049.25

Marty and Laura will have to save $1,049.25 monthly for the next 35 year in order for
them to have a $213,088.81 savings on their retirement age.
7. If the Hall’s continue paying the minimum 3% on their credit card debt each month, how
long will it take them to pay it off and how much total interest will they have paid? If
you were Dan, what would you advise them to do?

PMT [ 1-(1+r)-n]
PV =
r
300 * [1- (1 +0.0133) -n]
10,000.00 =
0.0133
10,000 * 0.0133
= 1- (1 +0.0133) -n
300.00
133.25
= 1- (1 +0.0133) -n
300.00
(1 + 0.0133) -n = 1 - 0.4442
-n
1.0133 = 0.5558
-n log 1.0133 = log 0.5558
log 0.5558
-n =
log 1.0133
-0.25508
-n =
0.00574
-n = -44.45444
n = 44.45 months ≈ 45 months

It would take the couple 45 months to pay their credit card loan and interest with
an equal payment of the 3% minimum or $300.
Month Beginning Balance Payment Interest Principal Ending Balance
Monthly
Interest on
Calculated Monthly Principal Payment -
Amount in Debt Beg Bal - Principal
Installment Amount @ Interest
15.99%
annually

1 10,000.00 (300.00) 133.25 166.75 9,833.25

2 9,833.25 (300.00) 131.03 168.97 9,664.28
3 9,664.28 (300.00) 128.78 171.22 9,493.05
4 9,493.05 (300.00) 126.49 173.51 9,319.55
5 9,319.55 (300.00) 124.18 175.82 9,143.73
6 9,143.73 (300.00) 121.84 178.16 8,965.57
7 8,965.57 (300.00) 119.47 180.53 8,785.04
8 8,785.04 (300.00) 117.06 182.94 8,602.10
9 8,602.10 (300.00) 114.62 185.38 8,416.72
10 8,416.72 (300.00) 112.15 187.85 8,228.88
11 8,228.88 (300.00) 109.65 190.35 8,038.53
12 8,038.53 (300.00) 107.11 192.89 7,845.64
13 7,845.64 (300.00) 104.54 195.46 7,650.18
14 7,650.18 (300.00) 101.94 198.06 7,452.12
15 7,452.12 (300.00) 99.30 200.70 7,251.42
16 7,251.42 (300.00) 96.63 203.37 7,048.05
17 7,048.05 (300.00) 93.92 206.08 6,841.96
18 6,841.96 (300.00) 91.17 208.83 6,633.13
19 6,633.13 (300.00) 88.39 211.61 6,421.52
20 6,421.52 (300.00) 85.57 214.43 6,207.08
21 6,207.08 (300.00) 82.71 217.29 5,989.79
22 5,989.79 (300.00) 79.81 220.19 5,769.61
23 5,769.61 (300.00) 76.88 223.12 5,546.49
24 5,546.49 (300.00) 73.91 226.09 5,320.39
25 5,320.39 (300.00) 70.89 229.11 5,091.29
26 5,091.29 (300.00) 67.84 232.16 4,859.13
27 4,859.13 (300.00) 64.75 235.25 4,623.88
28 4,623.88 (300.00) 61.61 238.39 4,385.49
29 4,385.49 (300.00) 58.44 241.56 4,143.93
30 4,143.93 (300.00) 55.22 244.78 3,899.14
31 3,899.14 (300.00) 51.96 248.04 3,651.10
32 3,651.10 (300.00) 48.65 251.35 3,399.75
33 3,399.75 (300.00) 45.30 254.70 3,145.05
34 3,145.05 (300.00) 41.91 258.09 2,886.96
35 2,886.96 (300.00) 38.47 261.53 2,625.43
36 2,625.43 (300.00) 34.98 265.02 2,360.41
37 2,360.41 (300.00) 31.45 268.55 2,091.87
38 2,091.87 (300.00) 27.87 272.13 1,819.74
39 1,819.74 (300.00) 24.25 275.75 1,543.99
40 1,543.99 (300.00) 20.57 279.43 1,264.56
41 1,264.56 (300.00) 16.85 283.15 981.41
42 981.41 (300.00) 13.08 286.92 694.49
43 694.49 (300.00) 9.25 290.75 403.74
44 403.74 (300.00) 5.38 294.62 109.12
45 109.12 (110.58) 1.45 109.12 -
TOTAL INTEREST 3,310.58

Dan could advise the Halls the following:

a. They have to pay the minimum amount for car and college loans as they are also
considering to loan a house and planning to have a child.
Car $220.81
College Loans $526,25

b. They have to keep their travel and party expenses to a minimum or none at all. They
have to live frugally for the next few months and pay full their existing credit card
debt and be able to clear it within 6 months. The shorter the time they will be able
to clear their debt, the smaller the interest covered.
- Available income after total expenses = $2,252.94

c. They should set their priorities straight. They should prioritize on investing their
money on house down payment, child's education, and retirement.
Down payment = ($1,376.67)
Child's education = ($322.23)
Retirement plan = ($1,049.25)
Total = ($2,748.15)

d. In a span of 2 years, their college loans, car loans and house down payment will end.
They should start paying their mortgage and saving for their child’s college fund and
retirement egg nest as soon as the end of the 2nd year. This is for them to realize
their long-term goals.