Ch 13 Homework Problems091616.docx - Chapter 13 Investing...

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Chapter 13 - Investing Fundamentals 13-1 091616 CH 13-FINANCIAL PLANNING PRACTICE PROBLEMS 1. Calculating the Amount for an Emergency Fund . Beth and Bob Martin have a total take-home pay of $4,900 a month. Their monthly expenses total $3,900. Calculate the amount the couple needs to fund an emergency fund. How did you calculate this amount? (LO13-1) 3900*3= $11,700 I took their monthly bills and multiplied that by 3 months to give a comfortable emergency fund. 2. Planning for an Investment Program . Assume you are 29 years old, your take-home pay totals $2,500 a month, your monthly living expenses total $1,600, your monthly car payment is $350 and your credit card debts total $3,600. Using the information presented in this chapter, develop a three-part plan to (a) reduce your monthly expense, (b) establish an emergency fund, and (c) save $6,000 to establish an investment program. (LO13-1) A) apply up to $250 per month to credit card bills which is up to 45% of his free monthly income. B) once credit card debt is paid off allocate 20% to building an emergency fund of $5850. C) then repeat for saving for investment program. 3. Determining Profit or Loss from an Investment . Three years ago, you purchased 150 shares of IBM stock for $93 a share. Today, you sold your IBM stock for $193 a share. For this problem, ignore commissions that would be charged to buy and sell your IBM shares and dividends you might have received as a shareholder. (LO13-1) a. What is the amount of profit you earned on each share of IBM stock? 1 9 3 - 9 3 = $ 1 0 0 p e r s h a r e b. What is the total amount of profit for your IBM investment? 100*150= $15,000 4. Determining the Time Value of Money . Using the table in the Financial Planning Calculations feature on page 450, complete the following table. Then answer the questions that follow the table. Hint: To calculate the total amount of interest or earnings, subtract the amount of your total investment from the value at the end of the time period. (LO13-1) Annual Deposit Rate of Return Number of Years
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