SOLUTION MANUAL
Focus on Personal Finance, 7th Edition
Table of Contents
1. Personal Financial Planning in Action
2. Money Management Skills
3. Taxes in Your Financial Plan
4. Financial Services: Savings Plans and Payment Accounts
5. Consumer Credit: Advantages, Disadvantages, Sources, and Costs
6. Consumer Purchasing and Wise Buying Strategies
7. Selecting and Financing Housing
8. Home and Automobile Insurance
9. Health and Disability Income Insurance
10. Financial Planning with Life Insurance
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11. Investing Basics and Evaluating Bonds
12. Investing in Stocks
13. Investing in Mutual Funds
14. Starting Early: Retirement and Estate Planning
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Chapter 1
(Note: Some of these problems require the use of the time value of money tables in the chapter
FD
appendix, 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
O
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 ()
c. At an annual interest rate of 5 percent, how long will it take for your savings to double?
About 14.4 years ()
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)
, ($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 three 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 value 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)
PR
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FD
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C
, $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)
PR
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.
$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
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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)
FD
8. Pete Morton is planning to go to graduate school in a program of study that will take three years.
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)
O
$8,000 2.829 = $22,632 (Exhibit 1-D)
C
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)
10. If a person spends $10 a week on coffee (assume $500 a year), what would be the future value of
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)
, 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.
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
PR
an annuity table in the chapter appendix.) (LO 1.3)
$8,.329 = $1,848
(Note: Some of these problems require the use of the time value of money tables in the
O
Chapter 1 Appendix, a financial calculator, or spreadsheet software.)
FD
Problems Chapter 2 - SOLUTIONS
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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
C
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)
Net worth = $21,200 ($100,100 - $78,900)
Focus on Personal Finance, 7th Edition
Table of Contents
1. Personal Financial Planning in Action
2. Money Management Skills
3. Taxes in Your Financial Plan
4. Financial Services: Savings Plans and Payment Accounts
5. Consumer Credit: Advantages, Disadvantages, Sources, and Costs
6. Consumer Purchasing and Wise Buying Strategies
7. Selecting and Financing Housing
8. Home and Automobile Insurance
9. Health and Disability Income Insurance
10. Financial Planning with Life Insurance
PR
11. Investing Basics and Evaluating Bonds
12. Investing in Stocks
13. Investing in Mutual Funds
14. Starting Early: Retirement and Estate Planning
O
Chapter 1
(Note: Some of these problems require the use of the time value of money tables in the chapter
FD
appendix, 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
O
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 ()
c. At an annual interest rate of 5 percent, how long will it take for your savings to double?
About 14.4 years ()
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)
, ($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 three 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 value 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)
PR
O
FD
O
C
, $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)
PR
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.
$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
O
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)
FD
8. Pete Morton is planning to go to graduate school in a program of study that will take three years.
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)
O
$8,000 2.829 = $22,632 (Exhibit 1-D)
C
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)
10. If a person spends $10 a week on coffee (assume $500 a year), what would be the future value of
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)
, 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.
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
PR
an annuity table in the chapter appendix.) (LO 1.3)
$8,.329 = $1,848
(Note: Some of these problems require the use of the time value of money tables in the
O
Chapter 1 Appendix, a financial calculator, or spreadsheet software.)
FD
Problems Chapter 2 - SOLUTIONS
O
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
C
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)
Net worth = $21,200 ($100,100 - $78,900)
