Finance Unit

Finance Test Review

  1. In 1950 the average annual salary of an American worker was $2,876. According to the U.S. Census Bureau, the median household income in 1998 was $38,885, about 13 times the salary of a worker from 1950. What was the percent increase in the average annual salary?

    2. \(\frac{38885-2876}{2876}=\;\frac{36009}{2876}=12.52=1252\%\)

    There was a 1252% increase in the average annual salary.

  2. Manuel found a wrecked Trans-Am that he could fix. He bought the car for 65% of the original price of $7200. What did he pay for the car? (Round to nearest dollar)

    3. \(7200(0.65)=4680\)

    Manuel paid $4680 for the car.

  3. You borrow $700 from your dad and promise to pay him back in 2 years with interest. You agree to pay 4% simple interest. How much total will you have to pay your dad back?

    4. \(I=Prt\)

    \(I=756(.04)(2)=56\)

    You paid $756 to your dad.

  4. You receive $3000 as a graduation gift from your rich uncle. You decide to invest the money in a mutual fund that earns an average APR of 6.75% compounded monthly. How much will you have in the mutual fund in 25 years?

    5. \(A\;=P\left(1+\frac rn\right)^{nt}\)

    \(A\;=3000\left(1+\frac{0.0675}{12}\right)^{12\ast25}=16,141.34\)

    You have $16,141.34 in the fund in 25 years.

  5. How much would you have to deposit today to accumulate $50,000 in 35 years if you earn 5.5% interest compounded quarterly?

    6. \(A\;=P\left(1+\frac rn\right)^{nt}\)

    \(50,000\;=P\left(1+\frac{0.055}{4}\right)^{4\ast35}\)

    \(50,000=P * 6.76583513\)

    \(P = 7390.07\)

    You must deposit $7,390.07 today to accumulate $50,000 in 35 years.

  6. You realize the importance of starting to save at an early age. So at age 20, you meet with a financial advisor and set up automatic monthly deposits of $75 into an investment account. If the account earns 8.3% interest, how much will you have in the account when you are 45 years old?

    7. \(A\;=PMT\frac{\left(\left(1+\;{\displaystyle\frac rn}\right)^{nt}-1\right)}{\left({\displaystyle\frac rn}\right)}\)

    \(A\;=75\frac{\left(\left(1+\;{\displaystyle\frac{0.083}{12}}\right)^{12\ast25}-1\right)}{\left({\displaystyle\frac{0.083}{12}}\right)}=74,904.48\)

    You will have $74,904.48 in the account when you are 45.

  7. You can afford a monthly house mortgage payment of $750. With a 15-year loan at 4% APR, how expensive a house can you afford to buy?

    8. \(PMT=\frac{\left(P\ast{\displaystyle\frac rn}\right)}{\left[1-\left(1+{\displaystyle\frac rn}\right)^{-nt}\right]}\)

    \(750=\frac{\left(P\ast{\displaystyle\frac{0.04}{12}}\right)}{\left[1-\left(1+{\displaystyle\frac{0.04}{12}}\right)^{-12\ast15}\right]}\)

    \(750=P * 0.0073968793\)

    \(P=101,394.11\)

    You can afford a $101,394.11 house.

  8. Greg got himself into trouble with credit card debt. He owes $3900 on his credit card. If he never uses his credit card again, but pays off his debt in 5 years at 19% interest, what are his monthly payments to the credit card company?

    9. \(PMT=\frac{\left(P\ast{\displaystyle\frac rn}\right)}{\left[1-\left(1+{\displaystyle\frac rn}\right)^{-nt}\right]}\)

    \(PMT=\frac{\left(3900\ast{\displaystyle\frac {0.19}{12}}\right)}{\left[1-\left(1+{\displaystyle\frac {0.19}{12}}\right)^{-12*5}\right]}\)

    Greg's monthly credit card payments are $101.17.

  9. The average price for a gallon of gasoline in the US was $3.01 in October of 2010. In June of 2019 it was $2.50. What was the percent increase in the average price of a gallon of gas?

    10. \(\frac{new\;-\;old}{old}\)

    \(\frac{3.01-2.50\;}{2.50}\)

    The average price for a gallon of gas decreased by 16.9%.

  10. Allison works 40 hours a week at a minimum wage job ($7.25 an hour). Her cell phone plan costs $45 each month. On an annual basis what PERCENT of her income does Allison spend on her phone? Assume she works 52 weeks a year.

    11. \(40*7.25*52=15,080\)

    \(45*12 = 540\)

    \(\frac{540\;}{15080}=0.036\)

    Allison spends 3.6% of her income on her cell phone.

  11. Find the monthly cash flow.

    12. Income Expenses
    Part-time job: $800/month Rent: $450/month
    Scholarship: $5250/year

    \(5250/12=$437.50\) per month

    		 Tuition and Fees: $4176/year

    \(4176/12=$348\) per month
    Tax Refund: $1200/year

    \(1200/12=$100\) per month

    		 Groceries and Incidentals: $125/week

    \(125*4=$500\) per month
    Phone: $35/month

    Total Income - Total Expenses

    \($1337.50 - $1333 = $4.50\)

    There is a positive monthly cash flow of $4.50.

  12. In 2021 you earned $100,000 at your job. Your investments earned you $4500 in interest for the year. You paid $9600 into a tax-deferred retirement account. Find the amount of Social Security/Medicare taxes and federal income taxes that you must pay.
    1. Wages: ____________________

      2. $100,000

    2. You must pay 7.65% of your wages for Social Security and Medicare taxes. Calculate your Social Security/Medicare taxes for 2021. ____________________

      3. \($100,000*0.0765=$7650\)