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Please provide to me at least TWO disadvantages for each of the following strategy in reducing your overall debt over the longrun.

Marry your mortgage to your income

Both Andrew and Stephanie can Match their repayments to their income. If they are paid fortnightly, they should make their repayment fortnightly or even weekly should they have excess of income. This helps chip away at the interest, saving them money over the long-term.

Use your lump sums

If they both would receive any lump sum payments like tax refunds or share dividends, they can put them into their home loan. The lump sum reduces the interest payable on the loan, meaning they can pay off the principal much sooner.

Increase your repayments

If they have a variable loan, which the ANZ Premium Home Loan Option is, they can take advantage of rate cuts by continuing their repayments at the same level as when the rate was higher. An extra $20 to $50 each repayment can cut up to two years off their loan.

Use an offset account

A 100% offset account uses their savings account to offset their home loan. For example, if they have $50,000 in their savings account and a $150,000 loan, their savings are

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Sixta Kovacek
Sixta KovacekLv2
28 Sep 2019

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home / study / questions and answers / business / finance / your friend john asks you for advice concerning ... Question Your friend John asks you for advice concerning life insurance. John is 40 years old and graduated from law school last year. He currently earn $43,000 per year as a first year attorney. John is married and has two children, Billy, age 12, and Sarah, age 4. John's wife, Mary, is a professor who currently earn $56,000 per year. Mary is 38 years old. John and Mary pay $1,700 per month for their home mortgage, which will be paid off in 15 years. The interest rate on their mortgage is 3.5%. (Their current equity in the home is $50,000) The couple owns two cars, both 8 years old, and personal property( such as cloths, electronic, furniture, etc) valued $35,000. Their investments have been used up paying for John's law school education, so they currently have only $1,000 in savings and checking accounts, and $2,000 in a mutual fund. John has no life insurance. Mary has $125,000 of life insurance provided by her employer. Mary' pension plus social security are expected to total $65,000 per year, beginning when she is 67 years old. If John should die, Mary would receive approximately $12,000 per year from social security until Billy reaches age 18, and $6,000 per year after that until Sarah reaches age 18. Mary'semployer subsidizes 75% of family' healthcare costs, so the family only pays about $3,000 per year out of pocket. John and Mary spend most of their current income, although they do try to save about $50 per month. Their investments earn approximately 4% per year. Inflation is currently rather low at about 2% per year, but John wonders if it will increase after the Federal Reserve stops their expansive monetary policy. In addition to their home mortgage, John makes student loan payment of $400 per month. He plans to pay back the loan in 4 years and the loan' interest rate is 6% per year. Given that Mary enjoys a flexible work schedule, and because Mary' mother lives close by and watches the kids two days per week, they currently are not paying any child care expenses. John is worried about what may happen to his family is he should die. He is considering the purchase of life insurance and asks your advice. question: Assuming neither John nor Mary will receive large inheritance, how much life insurance do you think John needs on his life? (Use the needs approach.) Show all calculation and explain your answer. Make any assumptions you believe are reasonable, and make sure your assumptions are clearly stated. Also indicate the type of insurance you would recommend, whole life or term, and explain why. If you select term insurance, indicate the number of years of coverage to purchase

Bob, Chad and Dylan had been dreaming of this day for the past six years; ever since they first met in an introductory economics course in college. For several years they had been pooling their money and buying Arizona Lottery tickets dreaming that one day they would win big. They realized that the lottery was considered by many to be a voluntary tax on the statistically challenged. But miraculously they now sat at their favorite local “watering hole” holding the winning ticket that meant they would split “The Pick” jackpot of $6 million. What a great feeling! Now they just needed to decide if they wanted to take their winnings as a lump sum now or to be paid over the next twenty in installments. Bob had been a political science major in college but things hadn’t worked out as he anticipated when he was a student. He had entered the job market at what looked now to be the bottom of the economic downturn following the housing crisis in the U.S. Bob believes he did not start his job search soon enough and found suitable openings virtually nonexistent. He was currently working part-time at an organic farm and still living at home which cramped his style consider-ably. He has $150,000 in college related loans (7% interest rate) which he cannot service based on his annual taxable income of $15,000. His share of the jackpot would allow him to be debt free and change his life for the better without doubt. Chad had been more fortunate than Bob. He had applied himself in college and earned a master of accounting degree with an emphasis in taxation. After graduation he immediately went to work for one of the international accounting firms and was now earning a taxable income of $100,000 in spite of the economic issues facing his friend Bob and the country as a whole. He too had debt but not from student loans. Chad had purchased a very nice home in Anthem, Arizona for approximately 50% of what it had sold for three years earlier when built. He had a $250,000 mortgage on the home, at a 4% interest rate, which he saw little reason to pay off since he anticipated significant inflation in the near future. Of the three friends Dylan was by far the most successful. Dylan had majored in finance and had excelled. When he graduated, although he had several attractive offers in the financial services industry, he decided to go into the family business. The company which his father and uncle had started nearly 50 years ago had done amazingly well in the downturn and since he was the only child/nephew they were rewarding him handsomely. He had been reluctant to tell Bob but he was on track to receive to- tal compensation (including bonuses) that yielded a taxable income of $300,000 this year. Unlike his friend Bob, Dylan was frugal and had taken on zero debt. He was pleased with the trio’s good fortune but he didn’t think the windfall would change his life all that much. A few days later when the euphoria of winning was subsiding the three friends met again at the same establishment. All four were obviously in good spirits and were looking forward to presenting their winning ticket to Arizona Lottery officials. Chad started the conversation by telling Bob and Dylan that he had taken the initiative of doing some basic research on how “The Pick” worked and what the payout options were. Bob, proud of his forethought, produced an article he had saved years earlier from the Arizona Daily Star with the headline “Lump-sum Lotto Payout is Best, Experts Say.” Bob excitedly told his buddies that the experts were local CPAs and that clearly the lump-sum payout was “the way to go.” Dylan said he wanted to hear what Chad had found out since he had gone to the effort of looking into the specifics. Chad (being a tax accountant) had prepared a summary of his research which follows: “A percentage of the proceeds from the sale of Lotto tickets are allocated to a prize pool. The size of the Jackpot that is prominently advertised, six million dollars in this instance, is actually only an estimate. The advertised amount is the sum of the estimated annuity1 payments, without consideration of the time value of money, which Lotto officials believe can be purchased from the prize pool. If the winner chooses the annuity payout multiple insurance companies submit bids. Officials award the bid to the insurance company that offers the largest annual payments in return for the prize pool amount. The insurance company with the best bid typically offers a rate that is near the long term U.S. Treasury Bonds rate (currently 3%). If the winner chooses the Lump Sum payout they simply receive the prize pool amount; the amount that would have been used to buy the annuity.” 1.The term annuity is actually a misnomer. Since the payments are made by the insurance company at the beginning of each of twenty periods it is an annuity due. After reading the summary Bob said he didn’t see how this related to the decision that had to be made since he didn’t see anything that changed the preferred option being that the lump-sum payout is best. Chad acknowledged that Bob was probably correct but he still wanted to “run the numbers” and suggested that Bob and Dylan should do the same. Chad reminded them that they needed to consider the tax consequences of the payout schema and then provided the following schedule of federal income tax rates and reminded them that the state tax rate was an additional 5%.Bob rolled his eyes but said he would get right on it. Dylan thanked Chad for the information and they agreed to meet again tomorrow to decide on the best course of action.

Questions 1. Prepare a personal analysis of the payout options for Bob, Chad and Dylan including their net income after taxes. Designate the preferred option for each individual and explain why.

1.Federal Deposit Insurance coverage on a single account in a single institution was set at this maximum insurable amount. A) 1,500,000 B) 1,000,000 C) 500,000 D) 250,000 E) 100,000

2.Federal Deposit Insurance coverage on a joint account in a single institution was set at this maximum insurable amount. A) 1,500,000 B) 1,000,000 C) 500,000 D) 250,000 E) 100,000.

3.If you had a 300,000 joint account with a relative in the FDIC insured Merchants Bank, and a second joint account with the same relative in the FDIC Insured Farmers Bank, then how much of your savings would be covered. A) 150,000 B) 300,000 C) 500,000 D) 600,000

4.If you had a 540,000 joint account with a relative in an FDIC insured financial institution, how much of your savings would not be covered. A) 40,000 B) 20,000 C) 250,000 D) 270,000

5.Under the Federal Truth-in-Savings Act, Banks must use a standard ______________ formula when stating the interest paid; which makes it easier for consumers to compare banks offerings. A) APR B) ROI C) APY D) CPI E) None of the above

6.The Savings Act also requires disclosure of _____________________ on any statements provided to customers. A) fees B) APY earned C) both of the above D) None of the above

7.Money Market Mutual Funds (MMMFs) pay earnings to investors/depositors interest rates based on __________. (A) Treasury yields ( B) Prime (C) Libor ( D) Market interest rates

8.Money Market Deposit Accounts at ____________________________ are federally insured. A) Investment companies B) Banks C) Banks & Investment companies D) Banks & Credit Unions

9.You can make arrangements with the bank to pay a check that overdraws your account, this is. A) Withholding B) Reconciling C) Stopping Payment D) Overdraft Protection E) Compounding

10In order to correct a billing error you must notify the creditor in writing _________ days after the bill was mailed. A) ten B) twenty C) thirty D) sixty

11.Once you have notified a creditor of a billing error, they can give damaging information to other ___________ . (A) Creditors; (B) Credit bureaus; (C) both A & B; (D) none of the above

12.Under the new Federal Reserve rules of 2010, the credit card company must notify you _______ days before they can increase your rate or other fees. A) 30, B) 45, C) 60, D) 90.

13.Under the new Federal Reserve rules beginning in Feb. 2010, the credit card company must notify you ___ days before they can make significant changes to the terms of your credit card. A) 30, B) 45, C) 60, D) 90.

14.Your rates can be increased without advanced notice if, _______________________________. (A) the index tied to your variable rate goes up; (B) your introductory rate expires and reverts to the “go to” rate; (C) you haven’t made your payments as agreed; (D) All of the above

15.The Fair Debt Collection Practices Act prohibits _______________________________ practices. A) abusive, B) deceptive, C) unfair, D) all of the above

16.Medium-priced loans typically cost _______ %. A)5 to 7; B) 6 to 8; C) 9 to 12; D) 8 ti0 20.

17.Expensive loans typically cost _______ %. A)5 to 7; B) 6 to 8; C) 8 to 20; D) 20 to 50.

18.Before the financial crisis of 2008, unethical predatory lending practices exploit __________. A) lower-income borrowers, B) Minority borrowers, C) elderly homeowners, D) all of the above

19.The ____________ favors lenders and dictates that you pay more interest at the beginning of the loan. A) rule of 72; B) rule of 78s; C) rule of the digits; D) catch 22.

20.The new Credit CARD law requires creditors to include a warning in their monthly statements that warn them that paying the minimum due you will ________________________________. A) pay more interest; B) take longer to pay off the balance; C) Both A & B; D) None of the above

21.The Truth in Lending Law requires your creditor disclose whether you are entitled to a ______ of the finance charge if you pay off the loan early. A) discount; B) refund; C) rebate; D) recredit.

22.The Credit Card Act of 2009, amongst other things, limits card issuer’ ability to increase the APR on transferred balances during the __________________ that the credit card account is open. A) first year; B) for 2 years; C) for 5 years; D) during the life of the loan.

23.The Credit Card Act of 2009, amongst other things, restricts the penalties that card issuers can charge for _____________. (A) early payment; (B) going over the credit limit; (C) late payment; D) all of the above.

24.The Credit Card Act of 2009, amongst other things, requires all teaser rates to stay in effect for at least ___ months. A) 6; B) 9; C) 12; D) 18; E) 24.

25.The Credit Card Act of 2009, amongst other things, sets a _________ due date for card payments each month. A) Early B) extended C) consistent D) flexible

26.The Credit Card Act of 2009, amongst other things, restricts card issuers from applying new (higher) interest rates to the ­­­________ ­­­­­­card balances. A) remaining, B) existing, C) undisclosed D) all of the above

27.Debt collection agencies cannot contact before ___ a.m. in the morning. A) 6; B) 7; C) 8; D) 9.

28.Debt collection agencies cannot state that you will be ___________ if you do not pay the debt. A) sued in civil court; B) sued for bankruptcy; C) arrested; D) all of the above

29.Debt collection agencies cannot state they are taking legal action if they _________________. A) haven’t probable cause; B) don’t intend to; C) haven’t done due diligence; D) all of the above

30.Debt collection agencies cannot contact you after ______ p.m. A) 7; B) 8; C) 9; D) 10.

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