1. (Past Midterm Exam Question, Winter 2007) Paul and Mary were separated last year on January 30th, 2006 and they were legally divorced recently, on January 31st, 2007. They were legally married on January 30th, 2000. At point of married, Paul owns a condominium valued at $150,000 as well as a bond portfolio valued at $100,000; and Mary owns a mutual fund valued at $150,000. They lived in the condominium during the marriage. The condominium was valued at $200,000 on Jan.30, 2006 and $220,000 on Jan.31, 2007. In 2002, Mary inherited a rental property from her father when he died. The rental property’s value has steadily increased as follows:- $200,000 in 2002 at her father’s death, $280,000 on January 30th, 2006 and $320,000 on January 31st, 2007. There was no change in value in Paul’s bond portfolio, but Mary’s mutual fund was valued at $190,000 on Jan30, 2006 and $180,000 on Jan31, 2007. How much does Paul owe Mary and how much does Mary owe Paul?
2. (Past Midterm Exam Question, Summer 2007)
The most recent balance sheet of Maria and Gordon Ho is as follows.
Term Deposit (5% interest, matures in 30 days) $2,500
Stock mutual funds $5,500
Liabilities and net worth:
Credit Card balances (18% interest) $5,000
Car Loan $5,000
Mortgage on home $170,000
Net Worth $43,800
Both of them work and their take-home pay is 30,000. Currently, they are not saving any money (other than the CPP contributions that the employers deduct from their pay cheques). They can borrow money for investment purposes at 6% interest. Required:
As their financial planner, describe briefly 4 recommendations with respect to managing their debt, and 3 other personal finance recommendations.
3. (a)What are the advantages of converting a consumer loan into an investment loan?
(b) Jane has $20,000 of consumer loan outstanding (e.g. credit card and car loan balances) and she is paying 18% interest. Her financial planner advises that she sells $20,000 of mutual funds that she owns and uses the proceeds to retire the consumer debt, then borrow an investment loan of $20,000 at 6% interest to purchase a similar mutual fund. Her marginal tax rate is 35%.Calculate the amount of savings per year if she follows the advice.
This question was asked on Jan 25, 2013.
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