1 - Tulane University



Finance 3000 – Personal FinanceProfessor - Bill ReeseMidterm ExamSummer 2019Instructions:The first two pages consist of 10 multiple choice questions for which you do not have to show any work. These questions are worth three points each. Circle the letter of the best answer. Please make it clear which letter you are circling.The next four pages contain 4 quantitative problems. Each problem is worth ten points. You must show your work (either formulas with the numbers inserted or what you were solving for in Excel along with your inputs) along with your final answers to receive full credit for these problems. Partial credit will be given where applicable. If you need extra space, continue working on the back of the page and leave me a note on the front that you are doing so.The next 4 pages are a tax return problem that is worth 30 points. Show your calculations and your final answers on the first page. Fill out the 1040, Schedule 1, and Schedule A on the next three pages. Partial credit will be given where applicable.Answer all money problems to the nearest cent. Answer all percentage problems to the nearest basis point (one-hundredth of a percent). Carry out all workings within a problem either in Excel or your calculator.While working on this exam, you may use any notes you took in class. You may look at anything on our class website, but may not access any other websites.You may not communicate with anyone during this exam.Cellphones may not be brought out or looked at.If you have any questions, please come to the front and ask me. Some problems may have more information than is needed to answer them.I will post your grades for this exam on the class website by your number as soon as I have them all graded. Good luck!Name (Please Print Neatly): ________________________________When evaluating how much money you will get to keep if you take on a second (part-time) job, which of the following should you consider?Your initial tax rateYour average tax rateYour marginal tax rateYou should consider each of the aboveIf your car insurance lists your liability coverage as 100/300/50, what is the maximum amount of money your insurance company will pay if you hit a car with two people in it (you are at fault) doing damage to the car and sending both people to the hospital?$250,000$300,000$350,000None of the above are correctWhich of the following is not covered in a standard renter’s insurance policy?Liability if you are sued by the owner of the house for accidental damage to the house that you causedTheft of your personal propertyLoss of your personal property in a fireLoss of your personal property in a floodWhich of the following statements regarding taxes is false?You cannot claim the $12,000 standard deduction on your federal tax return if you itemize.The money withheld from your paycheck for Social Security is not tax deductible on your federal tax return. If you were self-employed and earned $100,000 last year, you must pay twice as much Social Security taxes as someone earning the same amount who worked for an employer.The interest on your student loans is not tax-deductible on your federal tax return unless you itemize.You plan to put $250 into a savings account every month for the next 20 years with the first contribution being made today and the last one exactly 20 years from today. How much money will be in your savings account immediately after you make you last contribution, exactly 20 years from today if the account earns a 6% (APR with monthly compounding) return?$115,510.22$116,087.77$116,337.77$116,919.46If you park your car next to a building and the building collapses, with hundreds of bricks falling onto your car (no one is in the car), what provision of your car insurance policy covers you?LiabilityUninsured MotoristCollisionComprehensiveIn the scenario in #6 above, assume that your car was five years old and is damaged beyond repair. Under a standard car insurance policy, how much money will you receive as compensation for your car?Enough to pay for a comparable new carEnough to pay for a comparable new car minus your deductibleEnough to pay for a comparable used carEnough to pay for a comparable used car minus your deductibleWhich statement is true?If you have no deductible on your insurance policy, the insurance company faces the potential of a moral hazard problemIf you have no deductible on your insurance policy, the insurance company faces the potential of an adverse selection problemBoth A and B are trueNeither A nor B are trueWhat is the present value of $1 million to be received 20 years from today if interest rates are 10% (annual compounding)?$148,643.63$652,353.85$664,286.17$9,364,920.09You are stopped at a red light while driving your car. The car behind you doesn’t stop in time and it hits you. You are not hurt, but your rear fender is badly scratched and bent. You get an estimate on what it will cost to repair your car ($2,000) and submit it to your insurance company. Which of the following statements is false?You do not have to get your car repaired. You can spend the $2,000 on beer and music while you continue to drive your car with the scratch and bent fender.Since you were not at fault, the deductible on your collision insurance will not apply. It will be covered by the other driver’s liability insurance.If the driver who hit you did not have insurance, this will be covered by your uninsured motorist coverage. None of these statements (A, B, or C) are false. They are all trueToday is your 30th birthday. You have $1,000 in a mutual fund (an investment account) and plan to make monthly additions to this fund (the same amount every month starting one month from today). You estimate that this mutual fund will earn a 7% (APR with monthly compounding) return for as long as you have money in it. How much money do you need to add to the fund each month if you want to have exactly $1 million in your mutual fund on your 60th birthday? Hint: Think carefully about the signs (+ or -) for your excel inputs.Amount you must add to the fund each month _________________Suppose you take out a $180,000 mortgage to purchase a house. The interest rate on your mortgage is quoted to you as 4.50%. It is a 15-year mortgage with monthly payments. Please answer the following:What are your monthly payments? _____________For your first payment, how much is interest? _______________For your first payment, how much is principal? __________________After you have been making payments for exactly 10 years (120 payments), how much do you still owe on the home?___________________Over the entire life of the mortgage (15 years), how much interest will you pay?______________________If you borrow $10,000 today and pay back $11,000 in six months, what is the interest rate you are paying if you assume monthly compounding? First tell me the monthly rate, then the APR and then the EAR.Monthly Interest Rate ____________________APR _________________________EAR _________________________If you deposit $2,000 into a bank account today, how much will it have grown to in 20 years if the money is earning 5 percent APR? Assume your earnings are compoundedAnnuallyQuarterlyMonthlyDaily________________________________________________________________________________________Tax Return ProblemFor 2019, you have the following information available to input on your tax return. Please fill out the attached 1040 form, Schedule 1, and Schedule A. Complete the tax return so that your tax bill will be as low as (legally) possible.Note: You don’t need to fill out every line – just the numbers that you need to determine how much you owe in taxes and your refund (or what you owe).Please note: Though the attached 1040 form is for 2018, you should use the 2019 tax rates that we used in class. They can be found on our class website.Please show any calculations below.You are married and are filing a joint returnYou and your spouse have one child who lives with youYou earned $55,000 in 2019 and your spouse earned $60,000 (all wages)You contributed $5,000 to Tulane University’s annual fund driveYou had $4,000 in unreimbursed medical expenses during the yearYou own a home and in 2019, you made principal payments on your mortgage totaling $1,500 and interest payments totaling $18,000You and your spouse (combined) paid $2,000 in state income taxes this yearYou earned $500 of interest on money you invested in the bank this yearYou paid $1,500 in property taxes (real estate taxes) on your home this yearYou had $5,000 in federal income taxes withheld from your paycheck this yearYour spouse had $6,000 in federal income taxes withheld from his/her paycheck this yearYou paid $2,000 in student loans, of which $1,500 was interest and $500 was principalYou and your spouse each put $1,000 into your IRAs (you each have an IRA).Taxable Income for 2019 ____________________Total Federal Income Tax Bill for 2019 __________________Refund, or Owe Money? _____________________How much? ________________________ ................
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