
Personal Finance (8th Edition) (What's New in Finance)
8th Edition
ISBN: 9780134730363
Author: Arthur J. Keown
Publisher: PEARSON
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Question
Chapter 11, Problem 1PA
Summary Introduction
To discuss:
The evaluation of the listed investments.
Introduction:
Emergency savings fund is that fund that is made to cover the expenses of at least first 3 months that includes covering of the living expenses. The funds that will be taken in emergency savings funds should be highly liquid and should be converted into cash quickly.
Expert Solution & Answer

Explanation of Solution
a.
- Certificate of deposit certificates of deposit are the deposits that are purchased by large institutional investors and cannot be cashed before the maturity arises and have a term of 1 year and 5 years.
- The chances of losses in investment in certificate of deposit are withdrawal of the investment before maturity period.
- Certificate of deposit has a clause that prohibits users to withdraw cash before maturity, so it is not a highly liquid investment.
b.
- Treasury bills are that short term investment that are issued by the central government and is a promissory note to raise the funds from the central banks.
- Investing in treasury bills is a bit risky as the rates vary according to the fluctuation of interest rate.
- Investment in Treasury bill is highly liquid.
c.
- Investment in gold and silver coins is risky and provides high rate of truen most of the times.
- Investment in gold and silver coins is less liquid as the right buyer is not found at the right time.
- The price of such commodities such as gold and service fluctuates according to the demand in market.
d.
- Energy stocks are the shares of the company that produces or mines sources of energy and is highly volatile and risky.
- Energy stocks are liquids as they can be sold at any time on the market price that has been of that particular stock at the particular time.
e.
Money market mutual funds are those type of mutual funds that invest the money in the short term bills and commercial deposits.- The volatility of investment in money market mutual funds is very low as the money is invested in short term securities.
- It is highly liquid asset.
Conclusion
The person should invest in the short term investments that are more liquid and less risky.
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Pam and Jim are saving money for their two children who they plan to send to university.The eldest child will enter university in 5 years while the younger will enter in 7 years. Each child is expected spend four years at university. University fees are currently R20 000 per year and are expected to grow at 5% per year. These fees are paid at the beginning of each year.Pam and Jim currently have R40 000 in their savings and their plan is to save a fixed amount each year for the next 5 years. The first deposit taking place at the end of the current year and the last deposit at the date the first university fees are paid.Pam and Jim expect to earn 10% per year on their investments.What amount should they invest each year to meet the cost of their children’s university fees?
Pam and Jim are saving money for their two children who they plan to send to university.The eldest child will enter university in 5 years while the younger will enter in 7 years. Each child is expected spend four years at university. University fees are currently R20 000 per year and are expected to grow at 5% per year. These fees are paid at the beginning of each year.Pam and Jim currently have R40 000 in their savings and their plan is to save a fixed amount each year for the next 5 years. The first deposit taking place at the end of the current year and the last deposit at the date the first university fees are paid.Pam and Jim expect to earn 10% per year on their investments.What amount should they invest each year to meet the cost of their children’s university fees?
You make a loan of R100 000, with annual payments being made at the end of each year for the next 5 years at a 10% interest rate. How much interest is paid in the second year?
Chapter 11 Solutions
Personal Finance (8th Edition) (What's New in Finance)
Ch. 11 - Prob. 1PACh. 11 - Prob. 2PACh. 11 - Prob. 3PACh. 11 - Prob. 4PACh. 11 - Prob. 5PACh. 11 - Prob. 6PACh. 11 - Prob. 7PACh. 11 - Prob. 8PACh. 11 - Prob. 9PACh. 11 - Prob. 10PA
Ch. 11 - Prob. 11PACh. 11 - Prob. 1DC1Ch. 11 - Prob. 2DC1Ch. 11 - Prob. 3DC1Ch. 11 - Prob. 4DC1Ch. 11 - Prob. 5DC1Ch. 11 - Prob. 1DC2Ch. 11 - Prob. 2DC2Ch. 11 - Prob. 3DC2Ch. 11 - Prob. 4DC2Ch. 11 - Prob. 5DC2Ch. 11 - Prob. 6DC2Ch. 11 - Prob. 7DC2Ch. 11 - Prob. 8DC2Ch. 11 - Prob. 1DC3Ch. 11 - Prob. 2DC3Ch. 11 - Prob. 3DC3Ch. 11 - Prob. 4DC3Ch. 11 - Prob. 5DC3
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