Question 1
Johnson family has found that the current cost of attending college is $35,000 per year. How much lump sum amount they should have in their education account so that the 4 years of college is funded? Assume education inflation to be 6.25% and investment return to be 7% per year.
 $138,535
 $134,377
 $136,569
 $137,564
Question 2
Dorothy has $750 in cash, $2000 in savings account, $34,300 in stocks, $5,500 in bonds, and owns a car worth $15,500. She had $1,500 in credit card payments and an education loan of $24,000 of which $2,700 is due during the current year. She has a mortgage loan of $300,000 of which $7,000 due this year. She has an auto loan of $9,500 of which $3,700 is due in the next 12 months. She owns a home worth $350,000, furniture and fixtures of $1,500, appliances with a value of $1,000, a Condo worth $120,000 and stamp collection of $1,000. She also has mortgage on condo for $97,500 of which $3,200 is payable during the current year.
What is Dorothy total current liabilities?
 $14,400
 $18,100
 $7,900
 $15,400
Question 3
Dorothy has $750 in cash, $2000 in savings account, $34,300 in stocks, $5,500 in bonds, and owns a car worth $15,500. She had $1,500 in credit card payments and an education loan of $24,000 of which $2,700 is due during the current year. She has a mortgage loan of $300,000 of which $7,000 due this year. She has an auto loan of $9,500 of which $3,700 is due in the next 12 months. She owns a home worth $350,000, furniture and fixtures of $1,500, appliances with a value of $1,000, a Condo worth $120,000 and stamp collection of $1,000. She also has mortgage on condo for $97,500 of which $3,200 is payable during the current year.
What is Dorothy total current assets?
 $8,250
 $2,000
 $750
 $2,750
Question 4
Dorothy has $750 in cash, $2000 in savings account, $34,300 in stocks, $5,500 in bonds, and owns a car worth $15,500. She had $1,500 in credit card payments and an education loan of $24,000 of which $2,700 is due during the current year. She has a mortgage loan of $300,000 of which $7,000 due this year. She has an auto loan of $9,500 of which $3,700 is due in the next 12 months. She owns a home worth $350,000, furniture and fixtures of $1,500, appliances with a value of $1,000, a Condo worth $120,000 and stamp collection of $1,000. She also has mortgage on condo for $97,500 of which $3,200 is payable during the current year.
What is Dorothy total assets?
 $514,400
 $432,500
 $531,000
 $531,550
Question 5
Assume that $100 is deposited at the end of each year for five years at 10% compound interest and that no withdrawals are made over the fiveyear period. Based on this data, which one of the following statements is correct?
 The present value will be $500.
 The future value will be $550.
 The present value can be determined by computing the present value of $500 in five years at 10%.
 The present value can be determined by computing the present value of a $100 ordinary annuity for five years at 10%.
Question 6
Consider the following statistics for a household's annual cash flow:
Net Cash Flow ($4,400); Nondiscretionary Expenses ($32,750); Discretionary Expenses ($9,250); Retirement Investments ($13,500) and Debt Repayment ($4750).
Calculate the Gross Savings percentage.
 34.01%
 33.81%
 35.03%
 34.83%
Question 7
Maria wants to accumulate $45,000 in today's dollar terms in the next 6 years. She expects to earn a return of 6.25% per year and inflation is expected to be 1.75%. How much should be the serial payment in the 3rd year so that Maria can achieve the target?
 $7385
 $7071
 $6753
 $6950
Question 8
Maria wants to accumulate $45,000 in today's dollar terms in the next 6 years. She expects to earn a return of 6.25% per year and inflation is expected to be 1.75%. How much should be the serial payment in the 6th year so that Maria can achieve the target?
 $7645
 $7321
 $6991
 $7449
Question 9
Maria wants to accumulate $45,000 in today's dollar terms in the next 6 years. She expects to earn a return of 6.25% per year and inflation is expected to be 1.75%. How much should be the serial payment in the 4th year so that Maria can achieve the target?
 $6871
 $7514
 $7196
 $7072
Question 10
A household has the following statistics related to Balance Sheet and annual Cash Flow:
Balance Sheet Items: 
in Dollars 
Cash 
2,500 
CD 
12,000 
Savings Account Balance 
3,500 
Credit Card Debt 
9,500 
Current Year Portion of mortgage 
7,800 
Cash Flow Items: 

Salary 
115,000 
Dividend Income 
1,500 
Discretionary Expenses 
8,000 
Nondiscretionary Expenses 
28,975 
Debt Repayment 
8,700 
Retirement Investments 
15,500 
Capital Expenditure 
 
Compute the Current Ratio.
 2.70
 1.33
 1.04
 1.31
Question 11
A household has the following statistics related to Balance Sheet and annual Cash Flow:
Balance Sheet Items: 
in Dollars 
Cash 
2,500 
CD 
12,000 
Savings Account Balance 
3,500 
Credit Card Debt 
9,500 
Current Year Portion of mortgage 
7,800 
Cash Flow Items: 

Salary 
115,000 
Dividend Income 
1,500 
Discretionary Expenses 
8,000 
Nondiscretionary Expenses 
28,975 
Debt Repayment 
8,700 
Retirement Investments 
15,500 
Capital Expenditure 
 
Compute the Nondiscretionary Cost percentage
 6.96%
 25.20%
 24.87%
 6.87%
Question 12
Consider the following information of a Whole Life policy and a Term Life policy:
Guaranteed Contract Premium 
Guaranteed Death Benefit 
Projected Dividend 
Projected Cash Value 
Term Premium 
$2,300 
$200,000 
0 
0 
$325 
$2,300 
0 
0 
$330 

$2,300 
0 
0 
$335 

$2,300 
0 
$3,500 
$340 

$2,300 
$250 
$6,000 
$355 

$2,300 
$400 
$9,000 
$370 

$2,300 
$600 
$13,000 
$390 
Which policy is better if cash can be invested at 9% return?
 Whole Life Policy since IRR of difference in cash flows is greater than 9%
 Term Life Policy since IRR of difference in cash flows is less than 9%
 Whole Life Policy since IRR of difference in cash flows is less than 9%
 Term Life Policy since IRR of difference in cash flows is greater than 9%
Question 13
What is the difference in future value between savings in which $2,500 is deposited each year at the beginning of the period and the same amount deposited at the end of the period? Assume an interest rate of 5.25% per year and that both are due at the end of 12 years.
 $2120
 $1225
 $2390
 $2012
Question 14
Peter who is selfemployed has the following income and expenses during the year:
Business Income 
115,000 
Interest Income 
1,500 
Dividend Income 
2,200 
Hobbies 
550 
Recreational Expenses 
5,500 
Vacation Expenses 
2,500 
Alimony 
950 
Healthcare Cost 
5,250 
Clothing Expenses 
780 
Insurance Cost 
6,250 
Food Expenses 
8,275 
Taxes 
1,150 
Furniture Cost 
12,000 
Debt Repayment 
22,000 
New Debt Taken 
2,575 
Retirement investments 
15,500 
What is the total cash flow during the year?
 $47,700
 $56,070
 $40,570
 $61,550
Question 15
Peter who is selfemployed has the following income and expenses during the year:
Business Income 
115,000 
Interest Income 
1,500 
Dividend Income 
2,200 
Hobbies 
550 
Recreational Expenses 
5,500 
Vacation Expenses 
2,500 
Alimony 
950 
Healthcare Cost 
5,250 
Clothing Expenses 
780 
Insurance Cost 
6,250 
Food Expenses 
8,275 
Taxes 
1,150 
Furniture Cost 
12,000 
Debt Repayment 
22,000 
New Debt Taken 
2,575 
Retirement investments 
15,500 
What is the total cash flow from operations during the year?
 $75,495
 $80,400
 $87,495
 $80,900
Question 16
Which of the following is not a reason why insurance products are inefficient in a financial sense?
 Search Costs
 Overhead Costs
 Incomplete Information
 Underwriting Costs
Question 17
A disadvantage of term insurance is that
 you can only exchange your cash value for other insurance
 the cash value portion of the premium is larger than other forms
 it is expensive early in life when you need it the most.
 it becomes more expensive when you renew it
Question 18
Steve is planning to retire in couple of years. He has estimated that his annual requirement at the beginning of the1st year of retirement would be $75,000 per year. He expects to live for 22 years after retirement. How much should be the accumulated (lump sum) amount in his retirement account at the beginning of retirement so that his post retirement period is funded. Assume inflation to be 2.5% and investment return to be 7.25% per year.
 $1,021,399
 $1,048,636
 $1,021,011
 $1,068,325
Question 19
Marvin had two term policies to compare with costs as shown below. Based on 5% after tax discount rate, which one should he select and why?
Years  Policy A  Policy B 
1  $195  $210 
2  $240  $220 
3  $250  $235 
4  $270  $260 
5  $290  $285 
 Policy A, since NPV of Policy A is $1122 while NPV of Policy B is $1092
 Policy B, since NPV of Policy A is $1122 while NPV of Policy B is $1092
 Policy B, since NPV of Policy A is $1069 while NPV of Policy B is $1092
 Policy B, since NPV of Policy A is $1069 while NPV of Policy B is $1040
Question 20
Consider the following information of a Whole Life policy and a Term Life policy:
Guaranteed Contract Premium 
Guaranteed Death Benefit 
Projected 
Projected Cash Value 
Term Premium 
$2,300 
$200,000 
0 
0 
$325 
$2,300 
0 
0 
$330 

$2,300 
0 
0 
$335 

$2,300 
0 
$3,500 
$340 

$2,300 
$250 
$6,000 
$355 

$2,300 
$400 
$9,000 
$370 

$2,300 
$600 
$15,000 
$390 
 1.44%
 8.17%
 20.20%
 5.82%
This problem has been solved.
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