Thursday

August 21, 2014

August 21, 2014

Posted by **LaShun** on Friday, February 11, 2011 at 12:12pm.

and liabilities. He discovered that (i) he owes $80,000 on his house, which

he believes to be worth $150,000; (ii) his car is worth $20,000, against which

there is $2,000 on the remaining bank loan; (iii) his stock portfolio has risen to

$50,000; (iv) he has a $10,000 balance in his bank account, which is earning

a 1.2 percent annual interest rate; and (v) the value of his other belongings is

$45,000. He has just received his monthly paycheck for $6,000 and he is trying

to decide about taking a vacation and whether or not to pay off his car loan. His

monthly expenses are $3,000 which includes the interest expense on his auto

loan. He has two possible vacation choices: the Bahamas for $2,000 or a local

beach for $1,000. If he has any money left over at the end of the month, it will

go into his bank account. If he doesn’t have enough money to cover all of his

expenses for the month, he will sell enough of his stock to cover the excess

expenses.

Use a spreadsheet to input each of George’s assets, (i) to (v), in the first

column; the value of these assets in the second column; and the liabilities

(if any) against those assets in the third column. In the fourth column compute

the net asset value of each of the assets. Total the fourth column to determine

George’s net worth at the beginning of the month.

Compute the additional net income that George will have from his paycheck

plus the interest on his bank account minus the monthly expenses. Use this

information to answer parts (c) through (f) below.

Repeat part (a) for the end of the month assuming George does not take a

vacation and pays off his auto loan.

Repeat part (a) for the end of the month assuming George takes the Bahamas

vacation and only pays $1,000 on the principal of the auto loan.

Repeat part (a) for the end of the month assuming that George takes the local

beach vacation and pays off his auto loan.

Repeat part (a) for the end of the month assuming George takes the Bahamas

vacation and pays off the auto loan.

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