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George Wilkins checked the spreadsheet where he keeps track of his assets
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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