Personal Financial Planning (Tvm)

CASE: Personal Financial Planning

Marty & Laura Hall

Personal information is given below:

Age: both 30 years old Children: first child expecting at end of the year

Annual combined wages 75,000.00

Savings Account Balance 0.00

Income tax rate 28.00 % (constantly assumed)

Monthly accommodation rental 1,200.00

Car loans owed (24 payments remaining) 5,000.00 @ 5.99% per annum

College loans owed (24 payments remaining) 12,000.00 @ 5.25% per annum

Credit card balance owed 10,000.00 @ 15.99% per annum

(3% minimum monthly payment)

Questions & Solutions:

Financial targets and constrains are as follow:

1. Purchase $140,000 house within 12 months

a. 10% down payment 14,000.00

b. 90% home loan 126,000.00

c. 2% closing costs of the loan 2,520.00

d. 5% interest for 30-year mortgage

2. Saving for child’s college education 20,000.00 +4% increasing per year

3. Expected investment return 8.00 % per year

4. Annual inflation rate 4.00 % per year

1. If the Halls making minimum payments, how much money will they have left over for all other expenses?

The Halls’ current cash flow statement is as follow:

Wages ($75,000/12) 6,250.00 100.0 %

Income tax rate: 28% 1,750.00 28.0 %

Accommodation rental 1,200.00 19.2 %

Car payment * 221.58 3.6 %

College loan payment ** 527.80 8.4 %

Credit card payment (3% minimum) 300.00 4.8 %

2,250.62 36.0 %

* calculated from 5.99% annual compounded int. rate of $5,000 principal owed

** calculated from 5.25% annual compounded int. rate of $12,000 principal owed

leaving them with approximately $2,250 for all other expenses in each month.

2. How much money will the Halls have to deposit each month (beginning one month after the child is born and ending on his/her 18th birthday) in order to have enough for their child’s college education at the age of 18, then...