Solution Manual for
Focus on Personal Finance, 7th Edition
Chapter 1-14
Chapter 1
(Note: Some of these problems require the use of the time value of money tables in the chapter
M
appendix, a financial calculator, or spreadsheet software.)
1. Using the rule of 72, approximate the following amounts. (LO 1.1)
ED
a. If the value of land in an area is increasing 6 percent a year, how long will it take for property
values to double?
About 12 years ()
C
b. If you earn 10 percent on your investments, how long will it take for your money to double?
About 7.2 years ()
O
c. At an annual interest rate of 5 percent, how long will it take for your savings to double?
N
About 14.4 years ()
N
2. In 2019, selected automobiles had an average cost of $16,000. The average cost of those same
automobiles is now $20,000. What was the rate of increase for these automobiles between the two
time periods? (LO 1.1)
O
($20,000 - $16,000) / $16,000 = .25 (25 percent)
IS
3. A family spends $46,000 a year for living expenses. If prices increase by 3 percent a year for the
next three years, what amount will the family need for their living expenses after three years? (LO
1.1)
SE
46,000 1.09 = $50,140; or using Exhibit 1-A: $46,000 1.093 = $50,278
4. Ben Collins plans to buy a house for $260,000. If the real estate in his area is expected to increase
in value by 2 percent each year, what will its approximate value be seven years from now? (LO 1.1)
U
$260,000 1.149 = $298,740; or using Exhibit 1-A: $260,000 1.149 = $298,740
R
5. What would be the yearly earnings for a person with $9,000 in savings at an annual interest rate of
1.5 percent? (LO 1.3)
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
, $9,000 0.015 = $135
6. Using time value of money tables (Exhibit 1–3 or chapter appendix tables), calculate the following.
(LO 1.3)
a. The future value of $550 six years from now at 7 percent.
M
$550 1.501 = $825.55 (Exhibit 1-A)
b. The future value of $900 saved each year for 10 years at 8 percent.
ED
$900 14.487 = $13,038.30 (Exhibit 1-B)
c. The amount a person would have to deposit today (present value) at a 5 percent interest rate to
have $1,000 five years from now.
$1,000 0.784 = $784 (Exhibit 1-C)
C
d. The amount a person would have to deposit today to be able to take out $500 a year for 10 years
from an account earning 8 percent.
O
$500 6.710 = $3,355 (Exhibit 1-D)
7. If you desire to have $12,000 for a down payment for a house in five years, what amount would
N
you need to deposit today? Assume that your money will earn 4 percent. (LO 1.3)
$12,000 0.822 = $9,864 (Exhibit 1-C)
N
8. Pete Morton is planning to go to graduate school in a program of study that will take three years.
O
Pete wants to have $8,000 available each year for various school and living expenses. If he earns 3
percent on his money, how much must he deposit at the start of his studies to be able to withdraw
$8,000 a year for three years? (LO 1.3)
IS
$8,000 2.829 = $22,632 (Exhibit 1-D)
SE
9. Carla Lopez deposits $2,800 a year into her retirement account. If these funds have an average
earning of 7 percent over the 40 years until her retirement, what will be the value of her retirement
account? (LO 1.3)
$2,800 199.635 = $558,978 (Exhibit 1-B)
U
10. If a person spends $10 a week on coffee (assume $500 a year), what would be the future value of
R
that amount over 10 years if the funds were deposited in an account earning 3 percent? (LO 1.3)
$500 11.464 = $5,732 (Exhibit 1-B)
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
,11. A financial company that advertises on television will pay you $60,000 now for annual payments
of $10,000 that you are expected to receive for a legal settlement over the next 10 years. If you
estimate the time value of money at 10 percent, would you accept this offer? (LO 1.3)
The present value of the annual payment is calculated as: $10,000 X 6.145 = $61,450
The $60,000 being offered now is less than the present value of the future flow.
M
12. Tran Lee plans to set aside $2,600 a year for the next seven years, earning 3 percent. What
ED
would be the future value of this savings amount? (LO 1.3)
$2,600 X 7.662 = (future value of a series) = $19,921.20 (Exhibit 1-B)
13. If you borrow $8,000 with a 5 percent interest rate to be repaid in five equal payments at the end
C
of the next five years, what would be the amount of each payment? (Note: Use the present value of
an annuity table in the chapter appendix.) (LO 1.3)
O
$8,.329 = $1,848
N
(Note: Some of these problems require the use of the time value of money tables in the
Chapter 1 Appendix, a financial calculator, or spreadsheet software.)
N
O
Problems Chapter 2 - SOLUTIONS
IS
1. Based on the following data, determine the amount of total assets, total liabilities, and net worth.
(LO 2.2)
Liquid assets, $3,870 Investment assets, $8,340
Current liabilities, $2,670 Household assets, $87,890
SE
Long-term liabilities, $76,230
a. Total assets $________________
b. Total liabilities $______________
U
c. Net worth $__________________
R
Total assets = $100,100 ($3,870 + 8,340 + 87,890)
Total liabilities = $78,900 ($2,670 + $76,230)
Net worth = $21,200 ($100,100 - $78,900)
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
, 2. Using the following balance sheet items and amounts, calculate the total liquid assets and total
current liabilities: (LO 2.2)
Money market account $2,600 Medical bills $262
Mortgage $158,000 Checking account $780
Retirement account $87,400 Credit card balance $489
a. Total liquid assets $___________________
M
b. Total current liabilities $_________________
ED
a. Total liquid assets $3,380
b. Total current liabilities $751
3. Use the following items to determine the total assets, total liabilities, net worth, total cash inflows,
C
and total cash outflows. (LO 2.2)
Rent for the month, $650 Monthly take-home salary, $2,185
O
Spending for food, $345 Cash in checking account, $450
Savings account balance, $1,890 Balance of educational loan, $2,160
Current value of automobile, $8,800 Telephone bill paid for month, $65
N
Credit card balance, $235 Loan payment, $80
Auto insurance, $230 Household possessions, $3,400
Video equipment, $2,350 Payment for electricity, $90
N
Lunches/parking at work, $180 Donations, $160
Personal computer, $1,200 Value of stock investment, $860
Clothing purchase, $110 Restaurant spending, $130
O
a. Total assets $___________________
IS
b. Total liabilities $___________________
c. Net worth $___________________
SE
d. Total cash inflows $___________________
e. Total cash outflows $___________________
Total assets = $18,950 ($450 + 1,890 + 8,800 + 2,350 + 1,200 + 3,400 + 860)
U
Total liabilities = $2,395 ($235 + $2,160)
Net worth = $16,555 ($18,950 - $2,395)
Total cash inflows = $2,235
R
Total cash outflows = $2,040 ($650 + 345 + 230 + 180 + 110 + 65 + 80 + 90 + 160 +
130)
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
Focus on Personal Finance, 7th Edition
Chapter 1-14
Chapter 1
(Note: Some of these problems require the use of the time value of money tables in the chapter
M
appendix, a financial calculator, or spreadsheet software.)
1. Using the rule of 72, approximate the following amounts. (LO 1.1)
ED
a. If the value of land in an area is increasing 6 percent a year, how long will it take for property
values to double?
About 12 years ()
C
b. If you earn 10 percent on your investments, how long will it take for your money to double?
About 7.2 years ()
O
c. At an annual interest rate of 5 percent, how long will it take for your savings to double?
N
About 14.4 years ()
N
2. In 2019, selected automobiles had an average cost of $16,000. The average cost of those same
automobiles is now $20,000. What was the rate of increase for these automobiles between the two
time periods? (LO 1.1)
O
($20,000 - $16,000) / $16,000 = .25 (25 percent)
IS
3. A family spends $46,000 a year for living expenses. If prices increase by 3 percent a year for the
next three years, what amount will the family need for their living expenses after three years? (LO
1.1)
SE
46,000 1.09 = $50,140; or using Exhibit 1-A: $46,000 1.093 = $50,278
4. Ben Collins plans to buy a house for $260,000. If the real estate in his area is expected to increase
in value by 2 percent each year, what will its approximate value be seven years from now? (LO 1.1)
U
$260,000 1.149 = $298,740; or using Exhibit 1-A: $260,000 1.149 = $298,740
R
5. What would be the yearly earnings for a person with $9,000 in savings at an annual interest rate of
1.5 percent? (LO 1.3)
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
, $9,000 0.015 = $135
6. Using time value of money tables (Exhibit 1–3 or chapter appendix tables), calculate the following.
(LO 1.3)
a. The future value of $550 six years from now at 7 percent.
M
$550 1.501 = $825.55 (Exhibit 1-A)
b. The future value of $900 saved each year for 10 years at 8 percent.
ED
$900 14.487 = $13,038.30 (Exhibit 1-B)
c. The amount a person would have to deposit today (present value) at a 5 percent interest rate to
have $1,000 five years from now.
$1,000 0.784 = $784 (Exhibit 1-C)
C
d. The amount a person would have to deposit today to be able to take out $500 a year for 10 years
from an account earning 8 percent.
O
$500 6.710 = $3,355 (Exhibit 1-D)
7. If you desire to have $12,000 for a down payment for a house in five years, what amount would
N
you need to deposit today? Assume that your money will earn 4 percent. (LO 1.3)
$12,000 0.822 = $9,864 (Exhibit 1-C)
N
8. Pete Morton is planning to go to graduate school in a program of study that will take three years.
O
Pete wants to have $8,000 available each year for various school and living expenses. If he earns 3
percent on his money, how much must he deposit at the start of his studies to be able to withdraw
$8,000 a year for three years? (LO 1.3)
IS
$8,000 2.829 = $22,632 (Exhibit 1-D)
SE
9. Carla Lopez deposits $2,800 a year into her retirement account. If these funds have an average
earning of 7 percent over the 40 years until her retirement, what will be the value of her retirement
account? (LO 1.3)
$2,800 199.635 = $558,978 (Exhibit 1-B)
U
10. If a person spends $10 a week on coffee (assume $500 a year), what would be the future value of
R
that amount over 10 years if the funds were deposited in an account earning 3 percent? (LO 1.3)
$500 11.464 = $5,732 (Exhibit 1-B)
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
,11. A financial company that advertises on television will pay you $60,000 now for annual payments
of $10,000 that you are expected to receive for a legal settlement over the next 10 years. If you
estimate the time value of money at 10 percent, would you accept this offer? (LO 1.3)
The present value of the annual payment is calculated as: $10,000 X 6.145 = $61,450
The $60,000 being offered now is less than the present value of the future flow.
M
12. Tran Lee plans to set aside $2,600 a year for the next seven years, earning 3 percent. What
ED
would be the future value of this savings amount? (LO 1.3)
$2,600 X 7.662 = (future value of a series) = $19,921.20 (Exhibit 1-B)
13. If you borrow $8,000 with a 5 percent interest rate to be repaid in five equal payments at the end
C
of the next five years, what would be the amount of each payment? (Note: Use the present value of
an annuity table in the chapter appendix.) (LO 1.3)
O
$8,.329 = $1,848
N
(Note: Some of these problems require the use of the time value of money tables in the
Chapter 1 Appendix, a financial calculator, or spreadsheet software.)
N
O
Problems Chapter 2 - SOLUTIONS
IS
1. Based on the following data, determine the amount of total assets, total liabilities, and net worth.
(LO 2.2)
Liquid assets, $3,870 Investment assets, $8,340
Current liabilities, $2,670 Household assets, $87,890
SE
Long-term liabilities, $76,230
a. Total assets $________________
b. Total liabilities $______________
U
c. Net worth $__________________
R
Total assets = $100,100 ($3,870 + 8,340 + 87,890)
Total liabilities = $78,900 ($2,670 + $76,230)
Net worth = $21,200 ($100,100 - $78,900)
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
, 2. Using the following balance sheet items and amounts, calculate the total liquid assets and total
current liabilities: (LO 2.2)
Money market account $2,600 Medical bills $262
Mortgage $158,000 Checking account $780
Retirement account $87,400 Credit card balance $489
a. Total liquid assets $___________________
M
b. Total current liabilities $_________________
ED
a. Total liquid assets $3,380
b. Total current liabilities $751
3. Use the following items to determine the total assets, total liabilities, net worth, total cash inflows,
C
and total cash outflows. (LO 2.2)
Rent for the month, $650 Monthly take-home salary, $2,185
O
Spending for food, $345 Cash in checking account, $450
Savings account balance, $1,890 Balance of educational loan, $2,160
Current value of automobile, $8,800 Telephone bill paid for month, $65
N
Credit card balance, $235 Loan payment, $80
Auto insurance, $230 Household possessions, $3,400
Video equipment, $2,350 Payment for electricity, $90
N
Lunches/parking at work, $180 Donations, $160
Personal computer, $1,200 Value of stock investment, $860
Clothing purchase, $110 Restaurant spending, $130
O
a. Total assets $___________________
IS
b. Total liabilities $___________________
c. Net worth $___________________
SE
d. Total cash inflows $___________________
e. Total cash outflows $___________________
Total assets = $18,950 ($450 + 1,890 + 8,800 + 2,350 + 1,200 + 3,400 + 860)
U
Total liabilities = $2,395 ($235 + $2,160)
Net worth = $16,555 ($18,950 - $2,395)
Total cash inflows = $2,235
R
Total cash outflows = $2,040 ($650 + 345 + 230 + 180 + 110 + 65 + 80 + 90 + 160 +
130)
Copyright © 2020 McGraw-Hill Education. All rights reserved. No reproduction or distribution without the prior written consent of McGraw-Hill
Education.
