Rudabeh, 34, and Donovan, 31, want to buy their first home. Their current combined net income is $66,000 and they have two auto loans totaling $33,000. They have saved approximately $11,000 for the purchase of their home and have total assets worth $60,000, which are mostly savings for retirement. Donovan has always been cautious about spending large amounts f money, but Rudabeh really likes the idea of owning their own home although she hasn't expressed her preference to Donovan. They do not have a budget, but they do keep track of their expenses, which amounted to $57,000 last year, including taxes. They pay off all credit card bills on a monthly basis and do not have any other debt or loans outstanding. Other than that, they do not spend a great deal of time tracking their finances. a. What financial statements should Rudabeh and Donovan prepare to begin realizing their home purchase goal? What records should they use to compile these statements? b. Calculate their net worth and income surplus. c. Calculate and interpret their month's living expenses covered ratio and their debt ratio. d. What other information would be necessary or helpful to develop more complete statements? e. What six- to eight-step process should Rudabeh and Donovan undertake to develop a budget? f. Why might adopting Principle 6: Waste Not, Want Not-Smart Spending Matters be important to Rudabeh and Donovan, given their goal of home ownership? g. What recommendations do you have for Rudabeh and Donovan regarding financial communication?
Rudabeh, 34, and Donovan, 31, want to buy their first home. Their current combined net income is $66,000 and they have two auto loans totaling $33,000. They have saved approximately $11,000 for the purchase of their home and have total assets worth $60,000, which are mostly savings for retirement. Donovan has always been cautious about spending large amounts f money, but Rudabeh really likes the idea of owning their own home although she hasn't expressed her preference to Donovan. They do not have a budget, but they do keep track of their expenses, which amounted to $57,000 last year, including taxes. They pay off all credit card bills on a monthly basis and do not have any other debt or loans outstanding. Other than that, they do not spend a great deal of time tracking their finances. a. What financial statements should Rudabeh and Donovan prepare to begin realizing their home purchase goal? What records should they use to compile these statements? b. Calculate their net worth and income surplus. c. Calculate and interpret their month's living expenses covered ratio and their debt ratio. d. What other information would be necessary or helpful to develop more complete statements? e. What six- to eight-step process should Rudabeh and Donovan undertake to develop a budget? f. Why might adopting Principle 6: Waste Not, Want Not-Smart Spending Matters be important to Rudabeh and Donovan, given their goal of home ownership? g. What recommendations do you have for Rudabeh and Donovan regarding financial communication?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Rudabeh, 34, and Donovan, 31, want to buy their first home. Their current combined net income is $66,000 and they have two auto loans totaling $33,000. They have saved approximately $11,000 for the
purchase of their home and have total assets worth $60,000, which are mostly savings for retirement. Donovan has always been cautious about spending large amounts of money, but Rudabeh really likes the
idea of owning their own home although she hasn't expressed her preference to Donovan. They do not have a budget, but they do keep track of their expenses, which amounted to $57,000 last year, including
taxes. They pay off all credit card bills on a monthly basis and do not have any other debt or loans outstanding. Other than that, they do not spend a great deal of time tracking their finances.
a. What financial statements should Rudabeh and Donovan prepare to begin realizing their home purchase goal? What records should they use to compile these statements?
b. Calculate their net worth and income surplus.
c. Calculate and interpret their month's living expenses covered ratio and their debt ratio.
d. What other information would be necessary or helpful to develop more complete statements?
e. What six- to eight-step process should Rudabeh and Donovan undertake to develop a budget?
f. Why might adopting Principle 6: Waste Not, Want Not-Smart Spending Matters be important to Rudabeh and Donovan, given their goal of home ownership?
g. What recommendations do you have for Rudabeh and Donovan regarding financial communication?
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VIEWStep 2: a. Financial Statement that need to prepared to realize home purchase loan goal.
VIEWStep 3: b. Networth and Income Surplus
VIEWStep 4: c. Month's Living expense covered ratio & Debt Ratio
VIEWStep 5: d. Other Information relevant to develop more complete Financial Statement.
VIEWStep 6: e. Process to develop budget
VIEWStep 7: f. Principle 6 "waste not, want Not- smart spending Matters"
VIEWStep 8: g. Recommendation
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