Solution Manual for
Focus on Personal Finance 12th Edition by Jack Kapoor, Les Dlabay, Robert J.
Hughes & Melissa Hart ISBN-13 978-1259720680
Chapter 1-19
Chapter 1 Problems
1. Calculating the Future Value of Property. Ben Collins plans to buy a house for $220,000. If
that real estate is expected to increase in value 3 percent each year, what would its
approximate value be seven years from now?
Solution: $220,000 1.230 =
$270,600 LO: 1-2
Topic: Future
value LOD:
Intermediate
Bloom tag:
Apply
2. Using the Rule of 72. Using the rule of 72, approximate the following:
a. If land in an area is increasing 6 percent a year, how long will it take for
property values to double?
b. If you earn 10 percent on your investments, how long would it take for your money to
double?
c. At an annual interest rate of 5 percent, how long would it take for your savings to
double?
Solution: a. about 12 years (72/6)
b. about 7.2 years (72/10)
c. about 14.4 years
(72/5) LO: 1-2
7-1
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
,Topic: Time value of money – number of
periods LOD: Basic
Bloom tag: Apply
7-2
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
,3. Determining the Inflation Rate. In 2006, selected new automobiles had an average cost of
$16,000. The average cost of those same motor vehicles is now $28,000. What was the
rate of increase for this item between the two time periods?
Solution: ($28,000 – $16,000) / $16,000 = .75 (75
percent) LO: 1-2
Topic: Time value of money – interest rates and
inflation LOD: Intermediate
Bloom tag: Apply
4. Computing Future Living Expenses. A family spends $48,000 a year for living expenses. If
prices increase by 2 percent a year for the next three years, what amount will the
family need for its living expenses?
Solution: $48,000 1.061 = $50,928 (Future value of single amount for 3 years at
2 percent) LO: 1-2
Topic: Future
value LOD: Basic
Bloom tag: Apply
5. Calculating Earnings on Savings. What would be the yearly earnings for a person with
$8,000 in savings at an annual interest rate of 2.5 percent?
Solution: $8,000 .025 =
$200 LO: 1-4
Topic: Time value of money – interest rates and
inflation LOD: Basic
Bloom tag: Apply
7-3
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
, 6. Computing the Time Value of Money. Using time value of money tables, calculate the
following:
a. The future value of $450 six years from now at 7 percent.
b. The future value of $900 saved each year for 10 years at 8 percent.
c. The amount that a person would have to deposit today (present value) at a 6
percent interest rate in order to have $1,000 five years from now.
d. The amount that a person would have to deposit today in order to be able to
take out $600 a year for 10 years from an account earning 8 percent.
Solution: a. $450 1.501 = $675.45
b. $900 14.487 = $13,038.30
c. $1,000 0.747 = $747
d. $600 6.710 =
$4,026 LO: 1-4
Topic: Present
value LOD:
Intermediate
Bloom tag: Apply
7. Calculating the Future Value of a Series of Amounts. Elaine Romberg prepares her own
income tax return each year. A tax preparer would charge her $80 for this service.
Over a period of 10 years, how much does Elaine gain from preparing her own tax
return. Assume she earn 3 percent on her savings.
Solution: $80 11.464 =
$917.12 LO: 1-4
Topic: Future
value LOD:
Advanced Bloom
tag: Apply
8. Calculating the Time Value of Money for Savings Goals. If you desire to have $20,000 for a
7-4
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Focus on Personal Finance 12th Edition by Jack Kapoor, Les Dlabay, Robert J.
Hughes & Melissa Hart ISBN-13 978-1259720680
Chapter 1-19
Chapter 1 Problems
1. Calculating the Future Value of Property. Ben Collins plans to buy a house for $220,000. If
that real estate is expected to increase in value 3 percent each year, what would its
approximate value be seven years from now?
Solution: $220,000 1.230 =
$270,600 LO: 1-2
Topic: Future
value LOD:
Intermediate
Bloom tag:
Apply
2. Using the Rule of 72. Using the rule of 72, approximate the following:
a. If land in an area is increasing 6 percent a year, how long will it take for
property values to double?
b. If you earn 10 percent on your investments, how long would it take for your money to
double?
c. At an annual interest rate of 5 percent, how long would it take for your savings to
double?
Solution: a. about 12 years (72/6)
b. about 7.2 years (72/10)
c. about 14.4 years
(72/5) LO: 1-2
7-1
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
,Topic: Time value of money – number of
periods LOD: Basic
Bloom tag: Apply
7-2
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
,3. Determining the Inflation Rate. In 2006, selected new automobiles had an average cost of
$16,000. The average cost of those same motor vehicles is now $28,000. What was the
rate of increase for this item between the two time periods?
Solution: ($28,000 – $16,000) / $16,000 = .75 (75
percent) LO: 1-2
Topic: Time value of money – interest rates and
inflation LOD: Intermediate
Bloom tag: Apply
4. Computing Future Living Expenses. A family spends $48,000 a year for living expenses. If
prices increase by 2 percent a year for the next three years, what amount will the
family need for its living expenses?
Solution: $48,000 1.061 = $50,928 (Future value of single amount for 3 years at
2 percent) LO: 1-2
Topic: Future
value LOD: Basic
Bloom tag: Apply
5. Calculating Earnings on Savings. What would be the yearly earnings for a person with
$8,000 in savings at an annual interest rate of 2.5 percent?
Solution: $8,000 .025 =
$200 LO: 1-4
Topic: Time value of money – interest rates and
inflation LOD: Basic
Bloom tag: Apply
7-3
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
, 6. Computing the Time Value of Money. Using time value of money tables, calculate the
following:
a. The future value of $450 six years from now at 7 percent.
b. The future value of $900 saved each year for 10 years at 8 percent.
c. The amount that a person would have to deposit today (present value) at a 6
percent interest rate in order to have $1,000 five years from now.
d. The amount that a person would have to deposit today in order to be able to
take out $600 a year for 10 years from an account earning 8 percent.
Solution: a. $450 1.501 = $675.45
b. $900 14.487 = $13,038.30
c. $1,000 0.747 = $747
d. $600 6.710 =
$4,026 LO: 1-4
Topic: Present
value LOD:
Intermediate
Bloom tag: Apply
7. Calculating the Future Value of a Series of Amounts. Elaine Romberg prepares her own
income tax return each year. A tax preparer would charge her $80 for this service.
Over a period of 10 years, how much does Elaine gain from preparing her own tax
return. Assume she earn 3 percent on her savings.
Solution: $80 11.464 =
$917.12 LO: 1-4
Topic: Future
value LOD:
Advanced Bloom
tag: Apply
8. Calculating the Time Value of Money for Savings Goals. If you desire to have $20,000 for a
7-4
Copyright © 2015 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
