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Instructor’s Manual for Kapoor et al. Personal Finance 7CE.
addition, students should consider the questions listed in Appendix 1A of this chapter.
8. What is the relationship between current interest rates and financial opportunity costs? Using time
value of money calculations, state one or more goals in terms of an annual savings amount and the
future value of this savings fund.
This activity can help students to start to apply the skills associated with goal setting and time value
of money. Students should be encouraged to develop specific goals that can be measured using future
value and present value calculations.
9. Visit software retailers to obtain information about the features and costs of various personal financial
planning activities. Information about programs such as Microsoft Money and Quicken may be
obtained on the Internet.
This assignment can assist students with developing an understanding of using the Internet and
software for planning and implementing personal financial goals.
LIFE SITUATION CASE
Triple Trouble for the “Sandwich Generation”
1. What actions have Fran & Eds taken that would be considered to be wise financial planning choices?
Wise financial actions by the Blakes include funds set aside for the education of their children and
deposits to a retirement fund.
2. What areas of financial concern do Fran & Ed face? What actions might be appropriate to address
these concerns?
The financial burdens of raising children and paying for their education, the care of aging parents, and
setting aside funds for retirement.
3. Using time value of money calculations (tables in Appendix 1B), compute the following:
a. At 9 percent, what would be the value of the $52,000 education funds in three years?
$52,000 1.295 = $67,340 or use the formula $52,000 ( 1.09) 3 = $67,341.51
b. If the cost of long term care is increasing at 6 percent a year, what will be the approximate
monthly cost for Fran’s mother eight years from now?
$4,050 1.594 = $6,455.70 or use the formula $4,050(1.06) 8 = $6,455.09
c. Fran and Ed plan to deposit $2,500 a year to their RRSPs for 35 years. If they earn an average
annual return of 7 percent, what would be the value of their RRSPs after 35 years?
$2,500 ( (1.07 35 – 1) / .07) = $345,592,20
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Continuous Case
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Instructor’s Manual for Kapoor et al. Personal Finance 7CE.
1. Jamie Lee’s short term financial goal is to pay off the credit card in the year. The
intermediate goals Jamie has are to save enough for her cupcake café in 5 years and having her
own apartment. The short-term goal is specific in the amount paid but the time horizon is
dependent on her not using the card anymore. The intermediate goal is measurable (saving for
business) since it has a specific savings amount of $1,800 a year and time horizon for
achievement. The other intermediate goal is dependent on a lot of factors such as her ability to
save and market of the real estate industry and finding an affordable place.
2. Jamie should investigate the market around the business of her interest. Creating a
business plan would be wise as it would give her something to work on. Having an idea of the
costs associated with running a business is pretty important to understand. Failing in business is
usually caused by a lack of planning. A simple solution for her would be to use the emergency
funds to pay off the credit card immediately and save on the high interest charges. The interest
earned in the emergency fund is likely taxable and low whereas the interest paid on the credit
card is not deductible and high. After paying it off, add the $50 monthly to the emergency fund.
3. Jamie has already understood that by trying to achieve her goal of her business and
school she will have to forego a social life. Another thing she is foregoing is her own apartment
in the short term in order to achieve her intermediate goal.
4. If Jamie is depositing $1,800 annually (assuming normal annuity) for 5 years and earning
1% annually she would have $1,800 x ( (1.01 5 – 1) /.01) = $9,181.81.
If the money were deposited equally in monthly amounts of $150 (assume at end of 1 st month)
then she would have:
$1800/12 = $150 a month and we now have to use an effective monthly rate in our formula
so EMR = (1.01) 1./12 – 1= 0.000829538 and the number of payments (n) now is 12x5 =60
FV = $150 ((1.000829538 60 -1 ) / 0/000829538) =$9,223.82