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YUFin.Plan.#3

# YUFin.Plan.#3 - Lecture#3-Personal Financial Planning...

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Lecture #3 -Personal Financial Planning Today’s Agenda 1. Current topics/articles 2. Mid-term Exam-October 14, 2007, 2-5 pm, Location: VH B. 3. Review of Lecture #2. Chapter #2 - Problems #2,3,5,10,11,20,8,9&17. Chapter #13 – Problem #3. Chapter #15 – Problem #6. 4. Chapter #4-Measuring and Controlling Personal Finances 5. Chapter #12-Credit and Debt Management. 6. Next Week’s Assignment : Answer questions from Chapters 4, 12 and 15 as assigned in the Course Outline and read Chapters #5 and #7.

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Chapter #2-Problems Chapter #2 Problem #2 -Part a)- \$37,450. Part b)- \$9,372. Problem #3 -a), i) @6%, Option #III ii) @10%, Option III iii) @12%, Option I 3, b) – Using the interest rates given, Option III is the best.
Chapter #2-Problems Continued Problem#5 – a) Stated rate EAR 1 10% 10% 2 9.75 9.99 3 9.50 9.84 4 9.25 9.65 5 9.00 9.41 5.b) APR is another term for stated rate.

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Chapter #2-Problems Continued 5.c) Calculate the compound value at the end of 1, 3 & 5 year, for each type of account. So, for Type 1, the value of the investment would be \$55,000 at the end of Yr.1, \$66,550 at the end of Yr.3 and \$80,526 at the end of Yr.5. Now try to calculate the investment value for the remaining 4 account types. 5.d) Think of fees and minimum balance required.
Chapter #2-Problems Continued #10- Be careful with the dates on this question-it’s tricky! For example, Broderick’s first last salary date is the day before he turns 65;his first pension payment comes the day before he turns 66. First thing to do is to lay out the dates and payment options for the two options on a timeline.

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Chapter #2-Problems Continued #10 Continued: Broderick’s Proposal: (easiest to calculate at age 65) \$100,000+PVA 50,000 (22 yrs)+PV 22 yr [PVA 25,000, 20yr]+PVA 5,000 (5yr)+PV 40,000 (4 yr)+PV 40,000 (5yr) =100,000+553,062+PV 22 yr (264,850)+20,501+30,516+28,519 =792,378 at age 65. At age 60, the PV is 564,955, then add the \$60,000 salary=\$810,967. King Peter’s Proposal: FVA 130,000 (5 yrs)+40,000=747,596+40,000=787,596. b) What are the pros & cons of each offer?
Chapter #2-Problems Continued Problem #11 a. I/Y=6.66%, therefore he must save more. b. PMT=\$4,537 c. PMT=\$4,280 d. PMT=\$-35,933 (therefore, he could actually withdraw this amount each yr. and still achieve his objective of \$1 million by retirement.

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Chapter #2-Problems Continued Problem #20 a) PMT=\$2,525 b) PV=26,530 c) PMT=2,983 d) Allocate \$2,525 to Randy for 5 years and \$475 to Susan. Calculate the rest of the savings in the last 3 years.
Chapter #2-Problems Continued Additional Questions & Solutions #8. Share 1 Arithmetic Mean-17.7% Geometric Mean-16.22% Share 2 Arithmetic Mean-9.0% Geometric Mean-7.59% Share 3 Arithmetic Mean-15.50% Geometric Mean-15.22%

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Chapter #2-Problems Continued #9. a. Mr.Haroun will have \$3,206,934. Hint: Calculate the FV separately for each of the first 5 years, and then calculate the FV for the next 25 together. b. Each contribution earns one more year of interest. FV now is \$3,591,766.
Chapter #2-Problems Continued #17. a) Time (Yr.) 1 2 3 4 5 Stock A Dividend 0 0 0 0 0 R. of R. .091 -.017 .30 .154 .067 Stock B Dividend 1 1 1 1.15 1.15 R. of R. -.111 .133 -.063 .0107 .473

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Chapter #2-Problems Continued #17-Continued: b). Arithmetic Mean Stock A: .119 Stock B: .089 c). Geometric Mean Stock A: .1141 or 11.41% Stock B: .0704 or 7.04%
Chapter #13 Problem Problem #3 a.) PMT=\$1,379.75 per month.

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