3 Question 2Buying a Vacation Home. Barrie and Inga Adlington, of Birmingham, England, have just finished puttingtheir three daughters through college. As empty-nesters, they are considering purchasing a vacationhome in the United States on a lake because prices have dropped in recent years. The house might alsoserve as a retirement home once they retire in 6 years. The Adlingtons' net worth is $383,000 includingtheir home worth about $265,000 on which they currently owe $43,000 for their first mortgage, with a$778 per month payment. Their outstanding debts in addition to their mortgage include $12,500 onone car loan ($256 monthly payment), $13,700 on a second car loan ($287 monthly payment), and a$25,000 second mortgage on their home taken out to help pay for their daughters' ($187 monthlypayment) college expenses. Their gross income is $100,000.b) The Adlington's are considering buying a vacation home. Based on their debt-to-income ratio(previous question), they should:(hint: see page 87)buy the vacation homebuy a condo insteadavoid buying the vacation home until after their debts are paid downavoid buying the vacation home until they have zero debt

The debt-to-income ratio (DTI) compares your monthly debt payments to your monthly income. It's the…

Answered: Question 2 Buying a Vacation Home.…

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter6: Building And Maintaining Good Credit

Section: Chapter Questions

Problem 2DTM

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Question 2 You are working as a personal financial adviser. Alecia, one of your clients approached you for consultation about her plan to buy her dream house that costs $400,000. Alecia has a saving of $100,000 and is considering two alternative options: Investment 1: Investing that $100,000 in an investment that would pay a rate of return of 9% annually, compounding semi-annually for 15 years. Investment 2: Buying her dream house now. Then Alecia needs to borrow $300,000 mortgage from Prosperity Bank. The current interest rate the bank offered for the new mortgage is 4% annually, compounding monthly. The standard life of mortgage in Australia is 30 years. Required: A) Compute the effective annual interest rate (EAR) Alecia would actually get in Investment 1. B) Calculate the amount of money Alecia would accumulate in Investment 1 after 15 years. C) In Investment 1, how many year longer…
QUESTION 9 Maria and Ed just sold their home of 20 years so that they could purchase a smaller home. They realized a $400,000 capital gain the home. How much of this gain will Maria and Ed have to pay taxes on? O a. $ 0 O b. $100,000 O c. $300,000 O d. $400,000
Question 2. You are a young personal financial adviser. Molly, one of your clients approached you for consultation about her plan to save aside $450,000 for her child’s higher education in United States 15 years from now. Molly has a saving of $120,000 and is considering different alternative options: Investment 1:Investing that $120,000 in a saving account for 15 years. There are two banks for her choice. Bank A pays a rate of return of 8.5% annually, compounding semi-annually. Bank B pays a rate of return of 8.45 annually, compounding quarterly. Investment 2:Putting exactly an equal amount of money into ANZ Investment Fund at the end of each month for 15 years to get 330 000 she still shorts of now. The fund is offering a rate of return 7% per year, compounding monthly. Required: d) Calculate the monthly payment Molly needs to contribute into ANZ Investment Fund to get $330,000 after 15 years in Investment 2? e) In investment 2, if Molly changes to contribute $1200/month to that…
Q2. Your grandmother deposited $10,000 in an investment account on the day you were born to help pay the tuition when you go to college. If the account was worth $50,000 seventeen years after she made the deposit, what was the rate of return on the account?
B9. Darren and Nikki own a cabin in Mammoth, California. During the year, they rented it for 45 days for $9,000 and used it for 12 days for personal use. The house remained vacant for the remainder of the year. The expenses for the house included $8,000 in mortgage interest, $2,000 in property taxes, $1,200 in utilities, $750 in maintenance, and $4,000 in depreciation. What is their net income or loss from their cabin rental (without considering the passive loss limitation)? Use the IRS method for allocation of expenses.
Rocky and Adrien are selling their house. Offer #1 puts $8094 down and pays the lump sum $140010 in 3 months. Offer #2 puts $8094 down and pays the lump sum $178520 in 13 months. Assume their money can earn 4% simple interest if invested. What is the larger amount of money worth today (use today as a focal date)?
QUESTION 1 Raj (aged 33) and his wife, Anita (aged 30), have just purchased a new condominium in Bandar Sunway for RM550,OOO. They plan to take an 80% mortgage loan of RM440,OOO for the next 35 years. Raj has the following assets: a Nissan Cefiro worth RM65,OOO, stocks on Bursa Malaysia worth RM180,OOO, group insurance by his employer worth RM400,OOO and personal insurance with a face amount of RM250,OOO. He has a hire purchase loan on the Nissan Cefiro amounting to RM40,OOO. Should he pre-decease Anita, Raj plans to provide RM36,OOO per annum for Anita till she reaches age 70. He would also like to create an Emergency Buffer fund of RM50,OOO and Final Expenses fund of RM35,OOO. Using the Capital Liquidation method, compute the amount of additional life insurance that Raj needs to purchase. Assume a discount rate of 4% per annum and that income is received at the end of the period. In the example above; as life mortality is uncertain, Raj would like to provide for his wife, Anita, an…
This question has three parts: a, b & c Donny and Marie are 38 and 36 respectively. They have two children: Melissa aged eight and Bobby aged six. Donny is employed full-time as an architect and earns $150,000 p.a., whilst Marie works part-time at a local nursery and earns $26,000 p.a. They built their first home valued at $1,100,000. They have a Home Loan of $900,000 at a fixed rate of 2.62%. (Repayment of $3,600 per month).Their only assets, apart from the house and car are Donny’s super of $118,000 and $13,000 in a savings account. They have been contemplating upon upgrading their 5-year-old vehicle (which has been fully settled), to a Sports Utility vehicle. Before doing so they have decided that they need to review their personal insurances. Required: a) In relation to personal insurances identify two risks relevant to Donny & Marie in the scenario provided…
(Solving for r with annuities) Nicki Johnson, a sophomore mechanical engineering student, receives a call from an insurance agent, who believes that Nicki is an older woman ready to retire from teaching. He talks to her about several annuities that she could buy that would guarantee her an annual fixed income. The annuities are as follows If Nicki could earn 11 percent on her money by placing it in a savings account, should she place it instead in any of the annuities? Which ones, if any? Why? a. What rate of return could Nicki earn on her money if she place it in annuity A with $6500 payment per year and 16 years duration?
23 Which is TRUE in family home? S1 – If the decedent has five houses, the heirs may choose to claim from among the houses a family home S2 – A single person living alone can claim family home S3 – If a legally separated person lives with his minor children, the estate may claim family home S4 – The family home is the higher of the actual value but not to exceed Php 10,000,000. Group of answer choices S2 only S3 and S4 only S3 only All are false S2 and S3 only
3. How much life insurance do you need? Calculating resources- Part 2 Dmitri and Frances Ivanov have completed Step 1 of their needs analysis worksheet and determined that they need $2,418,000 to maintain the projected lifestyle of Frances (age 41) and their two children (ages 7 and 11) in the event of Dmitri’s (the primary earner’s) death. The Ivanovs also have certain financial resources available after Dmitri’s death, however, so their life insurance needs are lower than this amount. If Dmitri dies, Frances will be eligible to receive Social Security survivors’ benefits—approximately $3,500 a month ($42,000 a year) until the youngest child graduates from high school in 9 years. After the children leave home, Frances will be able to work full-time and earn an estimated $52,000 a year (after taxes) until she retires at age 65. After Frances turns 65, she’ll receive approximately $3,100 a month ($37,200 a year) from her own Social Security and retirement benefits. The life…
Mickey and Minnie live in Orlando. Mickey’s net present value of lifetime earnings in Orlando is $125,000, while Minnie’s is $500,000. The cost of moving to Atlanta is $25,000 per person. In Atlanta, Mickey’s net present value of lifetime earnings would be $155,000, while Minnie’s would be $510,000. If Mickey and Minnie choose where to live based on their joint well-being, will they move to Atlanta? Is Mickey a tied mover or a tied stayer or neither? Is Minnie a tied mover or a tied stayer or neither?

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