Question

1. Jim and Sally graduated from college in 2018. They have a combined monthly income (after taxes) of $8,400. Also, they have $5,500 in their savings account. They own a house worth $183,000, two used cars worth $22,000, jewelry worth $6,000, and furniture worth $4,000. The house has a mortgage of $167,000 and their car loans total $8,000. They have unpaid credit card balances of $3,200. Their monthly expenses are $6,400. Based on this information, please answer the following questions: a. What is their net worth? b. What is their monthly net cash flow? c. Based on their current financial situation, list and explain three (3) recommendations to improve their personal financial situation and increase their savings rate. 2. Calculate the value in 2040 (20 years from today) of each of the following: a. $346,500 invested today at a 2.14% interest rate b. $346,500 invested today at a 7.56% interest rate c. Explain how the differences in interest rates effect your answers in 2a and 2b

Answer 1

Jim & Jally

Combined Monthly Income (After taxes) = 8400

Part 1

A. Net worth = Asset minus Liabilities

Asset

# House =183000

# Saving Account =

# Car = 22000

# Jewellery = 6000

# Furniture = 4000

Total Assets = 220500

Liabilities

# Mortgages = 167000

# Car Loan = 8000

# Credit card = 3200

Total Liabilities = 178200

Personal Net worth = 42300 $

b.Monthly Cash flow = Monthly Income - Expenses

# 8400 - 6400 = 2000

C.3 Recommendations to improve the financial situation and increasing the Saving rate

# Credit card loan must have the highest interest rate,which can be paid by one time settlement or transfer into zero interest balance transfer.

# Mortgage loan of monthly settlement can be paid off very quickly converting into weekly or fortnight.so the principal portion can be reduce fastly and interest can be reduced.

# Possible way to analyse to reduce the expenses and invest the monthly net cash flow in alternative investment in equities to diversify the risk.

2. Assuming : Compounding periods per year : 12 (since the data related to compounding periods were not provided)

a & b.Calculation of Future Value

vawn Principal Interest rate Term (Years) Compounding periods per year Future Value $346,500 $346,500 2.14% | 7.56% 20 20 12 $531,393 $1,564,216 12

Formula for Future Value in Excel = =FV(C3/C5,C4*C5,0,-C2)

Function Arguments FV E = 0.0063 = 240 Rate D3DS Nper D4 D5 Pmto Pv 02 Type E = -346500 = number = 1564215.858 Returns the future value of an investment based on periodic, constant payments and a constant interest rate. Rate is the interest rate per period. For example, use 6%/4 for quarterly payments at 6% APR. Formula result = $1,564,216 Help on this function OK Cancel

Formula for future Value in excel = =FV(D3/D5,D4*D5,0,-D2)

Function Arguments FV E = 0.0063 = 240 Rate D3DS Nper D4 D5 Pmto Pv 02 Type E = -346500 = number = 1564215.858 Returns the future value of an investment based on periodic, constant payments and a constant interest rate. Rate is the interest rate per period. For example, use 6%/4 for quarterly payments at 6% APR. Formula result = $1,564,216 Help on this function OK Cancel

C.Difference in Value :

Interest rate	2.14%	7.56%
Future Value	$531,393	$1,564,216
Difference in Value	$1,032,823