How can using personal financial planning tools help you improve your financial situation? Describe changes you can make in at least three areas.


1.How can using personal financial planning tools help you improve your financial situation? Describe changes you can make in at least three areas.

2. Recommend three financial goals and related activities for someone in each of the follow- ing circumstances:
a. A Junior in college
b. A 30-year-old computer programmer who plans to earn an MBA degree

c. A couple in their 30s with two children, ages 5 and 9
d. A divorced 42-year-old man with a 16-year-old child and a 72-year-old father who is ill

3. Explain the life cycle of financial plans and their role in achieving your financial goals.

4. Summarize current and projected trends in the economy with regard to GDP growth, unemployment, and inflation. How should you use this information to make personal financial and career planning decisions?

5. Evaluate the impact of age, education, and geographic location on personal income.

6. Assume that you graduated from college with a major in marketing and took a job with a large consumer products company. After three years, you are laid off when the company downsizes. Describe the steps you’d take to “repackage” yourself for another field.


1. Scott Bennett is preparing his balance sheet and income and expense statement for the year ending June 30, 2016. He is having difficulty classifying six items and asks for your help. Which, if any, of the following transactions are assets, liabilities, income, or expense items?

a.Scott rents a house for $1,350 a month. 

b.On June 21, 2016, Scott bought diamond earrings for his wife and charged them using 
his MasterCard. The earrings cost $900, but he hasn’t yet received the bill. 

c.  Scott borrowed $3,500 from his parents last fall, but so far, he has made no payments to 

d.Scott makes monthly payments of $225 on an installment loan; about half of it is interest, 
and the balance is repayment of principal. He has 20 payments left, totaling $4,500. 

e.  Scott paid $3,800 in taxes during the year and is due a tax refund of $650, which he 
hasn’t yet received. 

f.   Scott invested $2,300 in some common stock. 


2. Stan and Elizabeth Carpenter are preparing their 2016 cash budget. Help the Carpenters reconcile the following differences, giving reasons to support your answers.

a.Their only source of income is Stan’s salary, which amounts to $5,000 a month before 
taxes. Elizabeth wants to show the $5,000 as their monthly income, whereas Stan argues 
that his take-home pay of $3,917 is the correct value to show. 

b.Elizabeth wants to make a provision for fun money, an idea that Stan cannot understand. 
He asks, “Why do we need fun money when everything is provided for in the budget?” 

3. Use future or present value techniques to solve the following problems.

a.If you inherited $45,000 today and invested all of it in a security that paid a 7 percent rate 
of return, how much would you have in 25 years? 

b.If the average new home costs $275,000 today, how much will it cost in 10 years if the 
price increases by 5 percent each year? 

c.  You think that in 15 years, it will cost $214,000 to provide your child with a 4-year college 
education. Will you have enough if you take $75,000 today and invest it for the next 
15 years at 4 percent? 

d.If you can earn 4 percent, how much will you have to save each year if you want to retire 
in 35 years with $1 million? 


4. Greg Fredericks wishes to have $800,000 in a retirement fund 20 years from now. He can create the retirement fund by making a single lump-sum deposit today.

a.If upon retirement in 20 years, Greg plans to invest $800,000 in a fund that earns 4 per- 
cent, what is the maximum annual withdrawal he can make over the following 15 years? 

b.How much would Greg need to have on deposit at retirement in order to withdraw 
$35,000 annually over the 15 years if the retirement fund earns 4 percent? 

c.  To achieve his annual withdrawal goal of $35,000 calculated in part b, how much more 
than the amount calculated in part a must Greg deposit today in an investment earning 4 percent annual interest? 


Mary Watson is 24 years old and single, lives in an apartment, and has no dependents. Last year she earned $45,000 as a sales assistant for Focused Business Analytics: $3,910 of her wages was withheld for federal income taxes. In addition, she had interest income of $142. Estimate her taxable income, tax liability, and tax refund or tax owed.

2. Debra Ferguson received the items and amounts of income shown in the chart to the right during 2011. Help her calculate (a) her gross income and (b) that portion (dollar amount) of her income that is tax exempt.

Salary $33,500 Dividends 800 Gift from mother 500 Child support from ex-husband 3,600 Interest on savings account 250 Rent 900 Loan from bank 2,000 Interest on state government bonds 300


3. If Amy Phillips is single and in the 28 percent tax bracket, calculate the tax associated with each of the following transactions. (Use the IRS regulations for capital gains in effect in 2011.) Treat each of the following cases as independent of the others.
a. She sold stock for $1,200 that she purchased for $1,000 5 months earlier.

b. She sold bonds for $4,000 that she purchased for $3,000 3 years earlier.
c. She sold stock for $1,000 that she purchased for $1,500 15 months earlier.


4. Use Worksheets 3.1 and 3.2.
QiangGao graduated from col-
lege in 2011 and began work as
a systems analyst in July of that
year. He is preparing to file his
income tax return for 2011 and
has collected the financial infor-
mation shown in the table to
the right for that calendar year.
a. Prepare Qiang’s 2011 tax return, using a $5,700 standard deduction, a personal exemption

Tuition, scholarships, and grants
Scholarship, room, and board
Salary 30,250

185 3,000 2,600

of $3,650, and the tax rates given in Exhibit 3.3. Which tax form should Qiang use, and why? b. Prepare Qiang’s 2011 tax return using the data in part a along with the following information:

IRA contribution $5,000 Cash dividends received 150

Which tax form should he use in this case? Why?

g.Demonstrate the differences resulting from a $1,000 tax credit versus a $1,000 tax deduc- tion for a single taxpayer in the 25 percent tax bracket with $40,000 of pre-tax income. 

h.Steve and Beth Compton have been notified that they are being audited. What should they do to prepare for the audit?