# Lesson 6 key

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```					Bus 40                      Personal Finance                         Name:________________
Lesson 6

FINANCIAL PLANNING PROBLEMS

1.       Louise McIntyre’s monthly gross income is \$2,000. Her employer withholds \$400 in federal, state,
and local income taxes and \$160 in Social Security taxes per month. Louise contributes \$80 per month for her
IRA. Her monthly credit payments for VISA, MasterCard, and Discover card are \$35, \$30, and \$20,
respectively. Her monthly payment on an automobile loan is \$285. What is Louise’s debt payments-to-income
ratio? Is Louise living within her means?
Louise’s Gross Income        = \$2,000
Less: Income taxes           =     -400
Less: Social Security Tax    =     -160
Less: IRA contribution       =      -80
Net take-home pay            = \$1,360

2.       Fred Reinero has had a student loan, two auto loans, and three credit cards. He has always made
timely payments on all obligations. He has a savings account of \$2,400 and an annual income of \$25,000. His
current payments for rent, insurance, and utilities are about \$1,100 per month. Fred has accumulated \$12,80 0
in an individual retirement account. Fred’s loan application asks for \$10,000 to start up a small restaurant
with some friends. Fred will not be an active manager; his partner will run the restaurant. Will he get the

3. A few years ago, Michael Tucker purchased a home for \$100,000. Today, the home is worth \$150,000.
His remaining mortgage balance is \$50,000. Assuming that Michael can borrow up to 80 percent of the
market value, what is the maximum amount he can borrow?

4. Calculating Debt Payments – to - Income Ratio. Suppose that your monthly net income is
\$2,400. Your monthly debt payments include your student loan payment, a gas credit card and they
total \$360. What is your debt payments – to – income ratio?

5. Credit Reduces Future Income. The disposable income from your part-time job in 2010 and
2011 is \$12,000. In 2010, you borrowed \$500 at 18 percent interest. You repay your loan with
interest in 2011. How much would you have available for spending in 2011?

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