Finance Unit 3 Questions

Topics: Insurance, Health insurance, Disability insurance Pages: 6 (1175 words) Published: April 15, 2012
Unit 3 Assignment
Answer 15 questions

[All Answers must be submitted in the form at the end of this test. No Exception]

1.Based on the following data, would you recommend buying or renting?

|Rental Costs |Buying Costs | |Annual rent, $7,380 |Annual mortgage payments, $9,800 ($9,575 is interest) | |Insurance, $145 |Property taxes, $1,780 | |Security deposit, $650 |Insurance/maintenance, $1,050 | | |Down payment/closing costs, $4,500 | | |Growth in equity, $225 | | |Estimated annual appreciation, $1,700 |

Assume an after-tax savings interest rate of 6 percent and a tax rate of 28 percent.

2.Estimate the affordable monthly mortgage payment, the affordable mortgage amount, and the affordable home purchase price for the following situation (see Exhibit 9-8):

Monthly gross income, $2,950

Down payment to be made, 15 percent of purchase price

Other debt (monthly payment), $160

Monthly estimate for property taxes and insurance, $210, 30-year loan at 8 percent.

3.Based on Exhibit 9-9, what would be the monthly mortgage payments for each of the following situations?

a.A $40,000, 15-year loan at 11.5 percent.
b.A $76,000, 30-year loan at 9 percent.
c.A $65,000, 20-year loan at 10 percent.

What relationship exists between the length of the loan and the monthly payment? How does the mortgage rate affect the monthly payment?


4.Which mortgage would result in higher total payments?

Mortgage A: $985 a month for 30 years, or

Mortgage B: $780 a month for 5 years, and $1,056 for 25 years

5.Kelly and Tim Jones plan to refinance their mortgage to obtain a lower interest rate. They will reduce their mortgage payments by $456 a month. Their closing costs for refinancing will be $1,670. How long will it take them to recover the cost of refinancing?

6.You estimate that you can save $3,800 by selling your own home rather than using a real estate agent. What would be the future value of that amount if invested for five years at seven percent?

7.Most home insurance policies cover jewelry for $1,000 and silverware for $2,500 unless items are covered with additional insurance. If a family had $3,500 of jewelry and $3,800 of silverware stolen, what amount of the claim would not be covered by insurance?

8.What amount would a person with actual cash value (ACV) coverage receive for two-year-old furniture destroyed by a fire? The furniture would cost $1,000 to replace today and had an estimated life of five years.

9.What amount would it cost an insurance company to replace a family’s personal property that originally cost $18,000? The replacement costs for the items have increased 15 percent.

10.If Carissa Dalton has a $130,000 home insured for $100,000, based on the 80 percent coinsurance provision, how much would the insurance company pay on a $5,000 claim?

11.For each of the following situations, what amount would the insurance company pay?

a.Wind damage of $785; the insured has $500 deductible.

b.Theft of a stereo system worth $1,300; the insured has a $250 deductible.

c.Vandalism that does $375 of damage to a home; the insured has a $500 deductible.

12. Becky Fenton has 25/50/10 automobile insurance coverage. If two other people are awarded $35,000 each for injuries in an auto accident in which the insured was judged at fault, how much of this judgment would insurance cover?

13.Kurt Simmons has 50/100/15 auto insurance coverage. One...
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