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.appe
ndix,.a.financial.calculator,.or.spreadsheet.software.)
1. Using.the.rule.of.72,.approximate.the.following.amounts.. (LO.1.1)
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.(72./.6)
b. If.you.earn.10.percent.on.your.investments,.how.long.will.it.take.for.your.money.to. double?
About.7.2.years.(72./.10)
c. At.an.annual.interest.rate.of.5.percent,.how.long.will.it.take.for.your.savings.to.double?
About.14.4.years.(72./.5)
2. In.2019,.selected.automobiles.had.an.average.cost.of.$16,000..The.average.cost.of.those.same.auto
mobiles.is.now.$20,000..What.was.the.rate.of.increase.for.these.automobiles.between.the.two.time.perio
ds?.(LO.1.1)
($20,000.-.$16,000)./.$16,000.=..25.(25.percent)
3. A.family.spends.$46,000.a.year.for.living.expenses..If.prices.increase.by.3.percent.a.year.for.the.next.t
hree.years,.what.amount.will.the.family.need.for.their.living.expenses.after.three.years?.(LO.1.1)
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.valu
e.by.2.percent.each.year,.what.will.its.approximate.value.be.seven.years.from.now?.(LO.1.1)
$260,000. . 1.149.=.$298,740;.or.using.Exhibit.1-A:.$260,000. . 1.149.=.$298,740
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.
$550. . 1.501.=.$825.55.(Exhibit.1-A)
b. The.future.value.of.$900.saved.each.year.for.10.years.at.8.percent.
$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)
d. The.amount.a.person.would.have.to.deposit.today.to.be.able.to.take.out.$500.a.year.for.10.years.from.a
n.account.earning.8.percent.
$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.you.n
eed.to.deposit.today?.Assume.that.your.money.will.earn.4.percent..(LO.1.3)
$12,000. . 0.822.=.$9,864.(Exhibit.1-C)
8. Pete.Morton.is.planning.to.go.to.graduate.school.in.a.program.of.study.that.will.take.three.years..Pete.w
ants.to.have.$8,000.available.each.year.for.various.school.and.living.expenses..If.he.earns.3.percent.on.hi
s.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)
$8,000. . 2.829.=.$22,632.(Exhibit.1-D)
9. Carla.Lopez.deposits.$2,800.a.year.into.her.retirement.account..If.these.funds.have.an.average.earni
ng.of.7.percent.over.the.40.years.until.her.retirement,.what.will.be.the.value.of.her.retirement.account?.(L
O.1.3)
$2,800. . 199.635.=.$558,978.(Exhibit.1-B)
10. If.a.person.spends.$10.a.week.on.coffee.(assume.$500.a.year),.what.would.be.the.future.value.of.that.a
mount.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.$1
0,000.that.you.are.expected.to.receive.for.a.legal.settlement.over.the.next.10.years..If.you.estimate.the.tim
e.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.
12. Tran.Lee.plans.to.set.aside.$2,600.a.year.for.the.next.seven.years,.earning.3.percent..What.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.of.the.
next.five.years,.what.would.be.the.amount.of.each.payment?.(Note:.Use.the.present.value.of.an.annuity.ta
ble.in.the.chapter.appendix.).(LO.1.3)
$8,000./.4.329.=.$1,848
(Note: Some of these problems require the use of the time value of money tables in the Chapt
. . . . . . . . . . . . . . . . .
er 1 Appendix, a financial calculator, or spreadsheet software.)
. . . . . . . .
Problems. Chapter.2.-.SOLUTIONS
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.
Long-term.liabilities,.$76,230
a. Total.assets.$
b. Total.liabilities.$
c. Net.worth.$
Total.assets.=.$100,100.($3,870.+.8,340.+.87,890)
Total.liabilities.=.$78,900.($2,670.+.$76,230)
Copyright.©.2020.McGraw-Hill.Education..All.rights.reserved..No.reproduction.or.distribution.without.the.prior.written.consent.of.McGraw-Hill
Education.
, 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.
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.appe
ndix,.a.financial.calculator,.or.spreadsheet.software.)
1. Using.the.rule.of.72,.approximate.the.following.amounts.. (LO.1.1)
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.(72./.6)
b. If.you.earn.10.percent.on.your.investments,.how.long.will.it.take.for.your.money.to. double?
About.7.2.years.(72./.10)
c. At.an.annual.interest.rate.of.5.percent,.how.long.will.it.take.for.your.savings.to.double?
About.14.4.years.(72./.5)
2. In.2019,.selected.automobiles.had.an.average.cost.of.$16,000..The.average.cost.of.those.same.auto
mobiles.is.now.$20,000..What.was.the.rate.of.increase.for.these.automobiles.between.the.two.time.perio
ds?.(LO.1.1)
($20,000.-.$16,000)./.$16,000.=..25.(25.percent)
3. A.family.spends.$46,000.a.year.for.living.expenses..If.prices.increase.by.3.percent.a.year.for.the.next.t
hree.years,.what.amount.will.the.family.need.for.their.living.expenses.after.three.years?.(LO.1.1)
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.valu
e.by.2.percent.each.year,.what.will.its.approximate.value.be.seven.years.from.now?.(LO.1.1)
$260,000. . 1.149.=.$298,740;.or.using.Exhibit.1-A:.$260,000. . 1.149.=.$298,740
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.
$550. . 1.501.=.$825.55.(Exhibit.1-A)
b. The.future.value.of.$900.saved.each.year.for.10.years.at.8.percent.
$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)
d. The.amount.a.person.would.have.to.deposit.today.to.be.able.to.take.out.$500.a.year.for.10.years.from.a
n.account.earning.8.percent.
$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.you.n
eed.to.deposit.today?.Assume.that.your.money.will.earn.4.percent..(LO.1.3)
$12,000. . 0.822.=.$9,864.(Exhibit.1-C)
8. Pete.Morton.is.planning.to.go.to.graduate.school.in.a.program.of.study.that.will.take.three.years..Pete.w
ants.to.have.$8,000.available.each.year.for.various.school.and.living.expenses..If.he.earns.3.percent.on.hi
s.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)
$8,000. . 2.829.=.$22,632.(Exhibit.1-D)
9. Carla.Lopez.deposits.$2,800.a.year.into.her.retirement.account..If.these.funds.have.an.average.earni
ng.of.7.percent.over.the.40.years.until.her.retirement,.what.will.be.the.value.of.her.retirement.account?.(L
O.1.3)
$2,800. . 199.635.=.$558,978.(Exhibit.1-B)
10. If.a.person.spends.$10.a.week.on.coffee.(assume.$500.a.year),.what.would.be.the.future.value.of.that.a
mount.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.$1
0,000.that.you.are.expected.to.receive.for.a.legal.settlement.over.the.next.10.years..If.you.estimate.the.tim
e.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.
12. Tran.Lee.plans.to.set.aside.$2,600.a.year.for.the.next.seven.years,.earning.3.percent..What.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.of.the.
next.five.years,.what.would.be.the.amount.of.each.payment?.(Note:.Use.the.present.value.of.an.annuity.ta
ble.in.the.chapter.appendix.).(LO.1.3)
$8,000./.4.329.=.$1,848
(Note: Some of these problems require the use of the time value of money tables in the Chapt
. . . . . . . . . . . . . . . . .
er 1 Appendix, a financial calculator, or spreadsheet software.)
. . . . . . . .
Problems. Chapter.2.-.SOLUTIONS
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.
Long-term.liabilities,.$76,230
a. Total.assets.$
b. Total.liabilities.$
c. Net.worth.$
Total.assets.=.$100,100.($3,870.+.8,340.+.87,890)
Total.liabilities.=.$78,900.($2,670.+.$76,230)
Copyright.©.2020.McGraw-Hill.Education..All.rights.reserved..No.reproduction.or.distribution.without.the.prior.written.consent.of.McGraw-Hill
Education.
, 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.
