finance

FINC 209 PERSONAL FINANCE PROJECT

Overview This project requires you to apply the concepts learned in FINC 209 Personal Finance course. The course has equipped you with basic personal finance skills. For this project, you must analyze the given information in the case, gather relevant information from various primary and secondary sources (In some cases other than the text book) and use your acquired skills in making optimum decisions. Goals Help Chris and Courtney Smith achieve their personal and financial goals by helping them with their objectives in credit management, home purchase, insurance analysis, retirement planning and investment planning. Deliverables A project report, maximum 6 pages. Please be brief and to the point. You may submit your PowerPoint presentation in lieu of a report, but make sure to answer all questions completely and show calculations where required. DUE BY April 30, 2021 Guidelines

1. Answer all questions in the accompanying case. Facts must be correct and opinions must be well supported.

2. The depth and quality of information will be evaluated in grading your project.

3. Please list the source of your information where relevant.

4. Creativity in solving problems in the case will be given extra points. However, solutions must adhere to facts.

5. Points (Maximum 50 points) will be awarded as follows:

a. 10 points each for Credit, Home Purchase, Insurance, Retirement and Investments. (40 points total)

b. 10 points for preparing a monthly budget for the Smith’s. Additional points will be given for suggestions on how the Smiths can improve their financial position.

The Smith Family Chris and Courtney Smith are developing a financial plan to accomplish their goals and objectives. They have great aspirations for the future, however are concerned about their current financial situation. Assume today’s date is January 1, 2021 Personal Background and Information Chris Smith (Age 33): Chris is the Vice President of Finance at Cornerstone, LLC, a company that helps firms with their digital presence. He has been employed there since its founding, 8 years ago. The company faces heavy competition and its profitability has been erratic. His job however, is fairly secure. His annual

salary is $125,000. He is entitled to a performance bonus of 20-30% of his salary. Owing to industry conditions and poor company profitability, no bonus was paid for the last two years. He is in good health with no history of illness and has never smoked. Courtney Smith (Age 32): Up until James was born, Courtney was an Operations Manager at a retail company. She is uncertain when she will return to work. She is in good health with no history of illness and has never smoked. Chris and Courtney have been married for 6 years. They have two children, James (4) and Sam (2). They have no criminal record and have a clean financial history. Other Financial Details They expect their investment portfolio to earn 8% over the long term.

 They file their taxes ‘Married Filing Jointly’. They take the standard deduction and have child tax credit for each of their two children.

 Chris has a 401 (K) plan at work. His company matches his contributions up to 3% of his salary.

 Chris’s 401 (K) is 100% invested in Mutual Funds.

OBJECTIVES AND QUESTIONS

1) Credit a) Are the Smith’s helping or hurting their credit score? (Use the information provided in

the case) b) The Smiths are planning on replacing their credit card. Evaluate two credit cards

available in the market and suggest one that they should consider. Please use the template in Chapter 5 of your book.

2) Home Purchase a) The Smiths are considering buying a house in New Jersey. Analyze their current financial

situation and discuss what the maximum mortgage payment they can afford. Based on your answer, what is the maximum value (approximately) of the property they should consider? Assume that the monthly cost of property taxes and insurance is $300.

b) Evaluate two sources of mortgage (i.e. two banks or mortgage lender) and two terms (E.g. two different maturities or fixed versus floating rates). Discuss advantages and disadvantages of each and pick the mortgage terms they should consider.

c) Discuss what other costs they can expect while closing the transaction. d) Suggested sources of information

i) LendingTree: https://www.lendingtree.com/ ii) Zillow.com: https://www.zillow.com/

iii) Bank Rate: https://www.bankrate.com/ 3) Insurance

a) Chris has the Omnia Bronze medical insurance offered by Horizon Blue Cross Blue Shield of New Jersey. (Refer to the Benefits Summary Support) Based on the explanation of benefits, help Chris and Courtney understand the following situations. Answer each question independent of the others:

i) What would be the cost of an annual routine physical?

ii) James fractured his wrist and had to be taken to the Emergency room. If the total bill for treatment was $1,500, how much would Chris have to pay from his pocket? Assume there were no other medical bills for the year.

iii) If James had fractured his wrist in a year when they had already incurred $7,000 in medical expense not including premiums and penalties. How much of the $1,500 for emergency treatment would the insurance cover? (Assume the individual out of pocket limit has not been reached)

iv) For this question, assume this year the family has already incurred medical expenses of $14,300 (Not including premiums and penalties). They incur $1,500 for a visit to a doctor’s office visit. The doctor was listed as a Tier 2 provider. How much will the insurance cover?

4) Retirement / Investment a) Chris’ company is expected to announce a policy that in the future, it will match 50% of

the contributions up to 8% of the salary. How much should Chris contribute to his retirement account to take full advantage of this policy and would you recommend that he do so?

b) Assuming their average tax rate is 25% currently and for the future until retirement and is expected to be 15% at retirement, how would $1,000 of pretax contribution today grow in an IRA versus Roth IRA? Assume 100% of the money is withdrawn after 30 years. Use the Smith’s expected rate of return on investments for compounding and assume there are no other contributions in the future.

c) Chris asks you, “Mutual Funds have high fees which I do not like to pay. Are there any options for investing in US stocks if I want to avoid paying high fees?” Help Chris with this question. Choose an alternative to Mutual Funds to invest in US stocks. Give your reasons for the choice.

5) Budget a) Please prepare a monthly Budget for the Smith’s which would result in increased savings

for James and Sam’s college. Refer to the list of income and expenditures provided.