1. a. Inflation is expected to average four percent for the long term and Mr. Smith earned $50,000 this year. How much must he earn in 20 years just to keep up with inflation and maintain the balance between his income and his increasing expenditures?
b. Jamie wants to have $2,000,000 for her retirement in 25 years. How much should she save annually if she thinks she can earn 10 percent on her investments?
c. The Flemings will need $100,000 annually for 20 years during retirement. How much will they need at retirement if they can earn a four percent rate of return?
d. The Hamptons want to have $3,500,000 for their retirement in 30 years. How much should they save annually if they think they can earn eight percent on their investments?
2. From the information given below, determine Marcie’s gross income for tax purposes:
interest (checking account) $50
cash received as birthday gift $900
dividends (mutual funds) $500
inheritance received on father’s death $22,000
cash received from insurance for accident claim settlement $3,200
cash dividend from stock $750
3. Sam has the following expenses that he wants to include as itemized deductions for the year. His adjusted gross income is $50,000. What is the total itemized deduction he can take? (Show all work.)
Medical expenses $4,500
Home mortgage interest 8,000
Credit card interest 450
Charitable contributions 1,500
State property taxes 2,400
Job related expenses 1,900
4. You have a stock mutual fund in which you put $3,000 per year. How much will you accumulate in the account in 25 years if the interest rate is 10 percent?
What if instead you have $4,000 to deposit in the mutual fund earning 10 percent? If you add $2,000 to that account annually, how much will you have accumulated in 15 years?
5. Leslie has been offered the choice of either a $1,000 rebate or a 5.5 percent, 48-month loan for the new car she is purchasing. If Leslie will be financing $15,000 and she can get a 7.5 percent, 48-month loan at her credit union, should she take the $1,000 rebate or the 5.5 percent loan?
6. Chris and Karen have a combined take-home income of $5,000. Their total monthly payments on consumer debt are $875. What is their debt safety ratio? Are they exhibiting any sign of approaching credit problems?