PERSONAL FINANCE
5th Edition
ISBN: 9781308498706
Author: Kapoor
Publisher: McGraw Hill
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Chapter 17, Problem 3CC
Summary Introduction
Case summary:
J and R arrived home after visiting colleges for the third weekend in a row with their triplet. They are considering state university or community college. Triplets are leaning towards state university which will help in tuition fees but that is a two hour car drive away. Due to the distance between home and college they are considering to buy a condominium near the college. They are trying to figure out whether this decision will be good or not. Eventually they decided to meet with financial planner JH and real estate broker AH as they are unfamiliar with the real estate investment opportunities.
Character in this case: J and R.
Adequate information:
Checking account: $5,000
Savings account: $47,000
Emergency fund savings account: $40,000
House: $475,000
IRA balance: $85,000
Life insurance cash value: $125,000
Investments (stocks, bonds): $700,000
Car: $14,500 (J) and $18,000 (R)
J: $45,000 gross income ($31,500 net income after taxes)
R: $135,000 gross income ($97,200 net income after taxes)
Mortgage: $1,225
Property taxes: $500
Homeowner’s insurance: $300
IRA contribution: $300
Utilities: $250
Mortgage balance: $47,000
Credit card balance: $0
Car loans: $0
Food: $600
Gas/maintenance: $275
Entertainment: $300
Life insurance: $375
To determine:
Financial benefits for J and R if they decide to purchase the house.
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Treasury securities are issued and backed by the U.S. government and, therefore, are considered to be the lowest-risk
securities on the market. As an investor looking for protection against inflation, you are considering the purchase of
inflation-adjusted bonds known as U.S. Treasury Inflation-Protected Securities (TIPS). With these securities, the face value
(which is paid at maturity) and the bond interest rate (which is paid semiannually) is regularly adjusted to account for
inflation. However, for this problem only, assume the semi-annual interest payment (called the bond dividend) remains the
same.
You purchased a 10-year $10,000 TIPS bond with dividend of 4% per year payable semiannually (i.e., $200 every 6
months). Assume there is no inflation adjustment for the first 5 years, but in years 6 through 10, the bond face value
increases by $850 each year. You use an expected investment return of 11% per year compounded semiannually.
NOTE: This is a multi-part question. Once an…
Chapter 17 Solutions
PERSONAL FINANCE
Ch. 17 - Prob. 17.1PQ1Ch. 17 - Prob. 17.1PQ2Ch. 17 - Prob. 17.1PQ3Ch. 17 - Prob. 17.2PQ1Ch. 17 - Prob. 17.2PQ2Ch. 17 - Prob. 17.3PQ1Ch. 17 - Prob. 17.3PQ2Ch. 17 - Prob. 17.4PQ1Ch. 17 - Prob. 17.4PQ2Ch. 17 - Prob. 17.4PQ3
Ch. 17 - Prob. 17.4PQ4Ch. 17 - Prob. 1FPPCh. 17 - Prob. 2FPPCh. 17 - Prob. 3FPPCh. 17 - Prob. 4FPPCh. 17 - Prob. 5FPPCh. 17 - Prob. 6FPPCh. 17 - Prob. 7FPPCh. 17 - Prob. 8FPPCh. 17 - Prob. 9FPPCh. 17 - Prob. 10FPPCh. 17 - Prob. 11FPPCh. 17 - Prob. 12FPPCh. 17 - Prob. 1FPACh. 17 - Prob. 2FPACh. 17 - Prob. 3FPACh. 17 - Prob. 4FPACh. 17 - Prob. 5FPACh. 17 - Prob. 6FPACh. 17 - Prob. 7FPACh. 17 - Prob. 1FPCCh. 17 - Prob. 2FPCCh. 17 - Prob. 3FPCCh. 17 - Prob. 1CCCh. 17 - Prob. 2CCCh. 17 - Prob. 3CCCh. 17 - Prob. 4CCCh. 17 - Prob. 1DSDCh. 17 - Prob. 2DSD
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