How does time affect your financial plan?
> What is a life-cycle fund? What are the advantages of this type of mutual fund?
> What is a fund family? What are the benefits of using a fund family?
> Discuss diversification among mutual funds. Describe some strategies that make diversification more effective. What is a mutual fund supermarket?
> Explain how Lipper indexes are used.
> Where can an investor find price quotations for closed-end and open-end funds? What information will be provided in a quotation for open-end funds? What information will be provided in a quotation for closed-end funds?
> What is a prospectus? How does an investor obtain one? What information does a prospectus provide?
> What should investors consider when deciding whether to purchase shares of a mutual fund? What characteristics of a mutual fund should be considered? Briefly discuss each characteristic.
> Discuss return and risk as they relate to bond mutual funds. What type of risk are all bond funds subject to? What other risk is associated with some bond funds? Describe the trade-off between risk and the expected return of bond mutual funds.
> Is a stock mutual fund’s past performance necessarily an indicator of future performance? What type of risk affects all stock mutual funds? Describe the trade-off between the expected return and risk of stock funds.
> Describe the three ways a mutual fund can generate returns for investors.
> Ronnie owns 600 shares of a stock mutual fund. This year he received dividend distributions of 60 stock mutual fund shares ($40 per share) and long-term capital gain distributions of 45 stock mutual fund shares (also $40 per share). What are the tax cons
> Rena purchased 200 shares of a no-load stock mutual fund. During the year she received $3 per share in dividend distributions, $200 in long-term capital gain distributions, and capital gains of $1,100 when she sold the stock after owning it eight months.
> In the past, some mutual funds often engaged in a practice called “after-hours trading” that allowed some of their larger shareholders to reap profits or avoid losses in a manner not available to all investors. To understand how this practice works, one
> John is a relatively conservative investor. He has recently come into a large inheritance and wishes to invest the money where he can get a good return, but not worry about losing his principal. His broker recommends that he buy 20-year corporate bonds i
> What if Mark’s Treasury bond in the previous problem had a coupon rate of 9% and new bonds still had interest rates of 8%? For what price should Mark sell the bond in this situation?
> Mark has a Treasury bond with a par value of $30,000 and a coupon rate of 6%. The bond has 15 years to maturity. Mark needs to sell the bond and new bonds are currently carrying coupon rates of 8%. At what price should Mark sell the bond?
> Emma is considering purchasing bonds with a par value of $10,000. The bonds have an annual coupon rate of 8% and six years to maturity. The bonds are priced at $9,550. If Emma requires a 10% return, should she buy these bonds?
> Mia wants to invest in Treasury bonds that have a par value of $20,000 and a coupon rate of 4.5%. The bonds have a 10-year maturity, and Mia requires a 6% return. How much should Mia pay for her bonds, assuming interest is paid annually?
> Timothy has an opportunity to buy a $1,000 par value municipal bond with a coupon rate of 7% and a maturity of five years. The bond pays interest annually. If Timothy requires a return of 8%, what should he pay for the bond?
> Katie paid $9,400 for a Ginnie Mae bond with a par value of $10,000 and a coupon rate of 6.5%. Two years later, after having received the annual interest payments on the bond, Katie sold the bond for $9,700. What are her total tax consequences if she is
> Bonnie paid $9,500 for corporate bonds that have a par value of $10,000 and a coupon rate of 9%, payable annually. Bonnie received her first interest payment after holding the bonds for 11 months and then sold the bonds for $9,700. If Bonnie is in a 35%
> Nancy and Al have been planning their retirement since they married in their early 20s. In their mid-40s and with two children in college, they are finding it harder to save and fear they will fall short of the savings needed to reach their retirement go
> Lisa and Mark married at age 22. Each year until their 30th birthdays, they put $4,000 into their traditional IRAs. By age 30, they had bought a home and started a family. Although they continued to make contributions to their employer-sponsored retireme
> In need of extra cash, Troy and Lilly decide to withdraw $8,000 from their traditional IRA. They are both 40 years old. They are in a 25% marginal tax bracket. What will be the tax consequences of this withdrawal?
> Tilly would like to invest $2,500 in before-tax income each year in a retirement account or in stock investments outside the retirement account. Tilly likes the stock investments outside the retirement account because they provide her with more flexibili
> How much will Marie have in her retirement account in 10 years if her contribution is $7,000 per year and the annual return on the account is 6%? How much of this amount represents interest?
> Chris purchased a call option on a stock for $200. The option gives him the right to purchase the stock at $30 per share until May 1. On May 1, the price of the stock is $28 per share. What is Chris’s return on the stock option?
> Carlos purchased 100 shares of stock in Company Alpha for $21 a share. He recently sold a call on the stock for $1.50 a share with a strike price of $40. The stock has since increased in price to $42 per share. How much will Carlos make on this stock if
> Paul has $10,000 that he wishes to invest in bonds. He can purchase Treasury bonds with a coupon rate of 7% or municipal bonds with a coupon rate of 5.5%. Paul lives in a state with no state income tax and has a marginal tax rate of 25%. Which investment
> Next on the Sampsons’ financial planning checklist is saving for retirement. Dave’s employer offers a 401(k) plan, but Dave has not participated in it up to this point. Now he wants to seriously consider contributing. His employer will allow him to inves
> Next on the Sampsons’ financial planning checklist is saving for retirement. Dave’s employer offers a 401(k) plan, but Dave has not participated in it up to this point. Now he wants to seriously consider contributing. His employer will allow him to inves
> What is the main advantage of retirement planning?
> What is a profit sharing plan? What are the contribution limits for profit sharing plans?
> Next on the Sampsons’ financial planning checklist is saving for retirement. Dave’s employer offers a 401(k) plan, but Dave has not participated in it up to this point. Now he wants to seriously consider contributing.
> Dave and Sharon want to make sure that their family is properly cared for in the event of their death. They recently purchased term life insurance and want to make sure that the funds are allocated to best serve their children in the long run. Specifical
> Dave and Sharon want to make sure that their family is properly cared for in the event of their death. They recently purchased term life insurance and want to make sure that the funds are allocated to best serve their children in the long run. Specifical
> Brad tells you that he has revised his retirement plans. He has set an even more ambitious goal of retiring in 20 years instead of the original goal of 30 years. His goal is to save $500,000 by that time. He is not taking advantage of his employerâ
> Brad tells you that he has revised his retirement plans. He has set an even more ambitious goal of retiring in 20 years instead of the original goal of 30 years. His goal is to save $500,000 by that time. He is not taking advantage of his employer’s reti
> Brad tells you that he has revised his retirement plans. He has set an even more ambitious goal of retiring in 20 years instead of the original goal of 30 years. His goal is to save $500,000 by that time. He is not taking advantage of his employer’s reti
> Brad tells you that he has revised his retirement plans. He has set an even more ambitious goal of retiring in 20 years instead of the original goal of 30 years. His goal is to save $500,000 by that time. He is not taking advantage of his employer’s reti
> Dave and Sharon want to make sure that their family is properly cared for in the event of their death. They recently purchased term life insurance and want to make sure that the funds are allocated to best serve their children in the long run. Specifical
> Judy has just received $12,500 as an inheritance from her uncle and is considering ways to use the money. Judy’s car is one-year-old, and her monthly payment is $304. She owes 48 more payments. The amount to pay off the loan is $12,460. How much will Jud
> Miguel, a recent 22-year-old college graduate, wants to retire a millionaire. How much will he need to set aside annually to achieve his goal, assuming he plans to retire at age 67 and he can earn an 8% annual return on his investment?
> Judy believes that another benefit of investing the extra $3,648 in her employer sponsored retirement plan is the tax savings. Judy is in a 25% marginal tax bracket. How much will investing in this manner save her in taxes annually? Assuming she remains
> Judy pays off her car loan and now must decide how she wants to invest the extra $3,648 per year that she budgeted for car payments. She decides to invest this additional amount in her employer-sponsored retirement plan. Currently, the plan is averaging
> Explain how excessive spending can prevent effective financial planning.
> How does life insurance protect your wealth? Who needs life insurance?
> How does purchasing car insurance and homeowner’s insurance help protect and maintain your wealth?
> In the previous question, you decide to pay off the car loan and invest the difference. Now you no longer have a $350 per month car payment. Suggest some ways you might use these additional funds.
> Why is it important to integrate the components of your financial plan?
> Explain why having very specific goals is important for financial planning.
> How does budgeting fit into your financial plan? How is your financial plan affected by your spending? What is the budgeting trade-off?
> Why is it important to keep financial records stored in a safe location? List some important documents that you should keep in a safe place.
> Why is it important to track your expenditures for a few months? How does this practice impact your budget?
> How does purchasing sufficient health insurance and disability insurance help protect and maintain your wealth?
> You have some extra cash in your budget that you wish to invest. You have narrowed your choices to a single stock, Treasury bonds, or stock mutual funds. What characteristics of each investment alternative should you consider in making your decision?
> You have a $7,000 balance on your car loan at 11% interest. Your favorite aunt has just left you $10,000 in her will. You can put the money in a money market account at your bank and pay off your car loan, or you can invest the money in mutual funds. Wha
> What do you think happens to your budget when your financial position changes?
> Discuss some methods for maintaining and protecting your wealth. What is the insurance trade-off?
> Describe some advantages and disadvantages of using personal financing to achieve your financial goals. What is the personal financing trade-off?
> Describe some advantages and disadvantages of using personal financing to achieve your financial goals. What is the personal financing trade-off?
> Discuss how managing liquidity fits into your financial plan. What is the liquidity trade-off?
> Judy (from problem 1) is also considering investing the $12,500 in a certificate of deposit (CD). She is guaranteed a return of 4% on a four-year CD. How much would Judy earn from the CD? Which of the two alternatives offers the better return? Data from
> Referring to the previous question, what other factors should Miguel consider with regard to his retirement goal? What recommendation would you give Miguel regarding his goal? Data from Question 5: Miguel, a recent 22-year-old college graduate, wants t
> What is a beneficiary? Why is it important to be specific with regard to beneficiaries and assets in your will?
> How can contributions to charitable organizations help in estate planning?
> What is an irrevocable living trust?
> Beyond the will, what does estate planning involve?
> Jill just inherited $7 million from her grandfather in 2015. How much of the inheritance is subject to estate tax?
> What is a revocable living trust? How can a revocable living trust be used to help your estate? How does a revocable living trust affect estate taxes?
> What is a trust? What is the difference between a living trust and a testamentary trust?
> Why is it important to calculate the value of your estate periodically?
> Discuss estate taxes. When is an estate subject to and not subject to estate taxes? What is the top federal estate tax rate? What other taxes may be levied against an estate?
> What is probate? Describe the probate process.
> When would you change your will? How can your will be changed?
> List and briefly discuss the key components of a will.
> Describe two common types of wills.
> List the requirements for a valid will
> What is a will? Why is a will important? What happens if a person dies without a will?
> What is an estate? What is estate planning? What is the main goal of estate planning?
> In the nineteenth century, people traveled the country selling tonics that were guaranteed to cure all the ailments of humankind. In the twenty-first century, the “snake oil salesmen” have been replaced with individuals making professional presentations
> Lisa has an estate worth $3.21 million and three children who will receive her assets on her death. Should she create a will give that her estate is worth less than the $5.43 million threshold that is exempt from estate taxes?
> How can you use annual gifts to reduce the tax burden on your heirs?
> What is an executor? Why is it important to name an executor in your will?
> How should estate plan documents be maintained?
> What is a durable power of attorney for health care? Why is it needed even if you have a living will?
> What is a power of attorney?
> What is a living will? What are its implications for estate planning?
> How do gifts fit into estate planning?
> What is a standard family trust? Give an illustration.
> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend
> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend
> With your help, Dave and Sharon Sampson have now established a financial plan. Among their key financial planning decisions were the following: • Budgeting. They decided to revise their budget to make it possible to start saving. By reducing their spend
> Next on the Sampsons’ financial planning checklist is saving for retirement. Dave’s employer offers a 401(k) plan, but Dave has not participated in it up to this point. Now he wants to seriously consider contributing. His employer will allow him to inves
> In its most recent financial statements, Del-Castillo Inc. reported $70 million of net income and $900 million of retained earnings. The previous retained earnings were $855 million. How much in dividends did the firm pay to shareholders during the year?
> Kendall Corners Inc. recently reported net income of $3.1 million and depreciation of $500,000. What was its net cash flow? Assume it had no amortization expense.
> Talbot Enterprises recently reported an EBITDA of $8 million and net income of $2.4 million. It had $2.0 million of interest expense, and its corporate tax rate was 40%. What was its charge for depreciation and amortization?
> Molteni Motors Inc. recently reported $6 million of net income. Its EBIT was $13 million, and its tax rate was 40%. What was its interest expense? (Hint: Write out the headings for an income statement and then fill in the known values. Then divide $6 mil
> Porporate bonds issued by Johnson Corporation currently yield 8%. Municipal bonds of equal risk currently yield 6%. At what tax rate would an investor be indifferent between these two bonds?
> Zang Industries has hired the investment banking firm of Eric, Schwartz, & Mann (ESM) to help it go public. Zang and ESM agree that Zang’s current value of equity is $60 million. Zang currently has 4 million shares outstanding and will issue 1 million ne
