New assignment

JENNIFER BARRY CASE STUDY

Jennifer Barry, age 25 and single, is not unlike many young adults today. Just a few years out of

college, she is in debt. She owes $16,000 on a student loan (this loan has an annual interest of 6%).

Jennifer owes $7,300 on two credit cards (combined), and she has a $3,000 outstanding auto loan

on her car (a Kia Forte). “I kind of went overboard on credit in college," Jennifer explains. "Now

I want to get this debt paid off as soon as possible so I can increase my savings." Her assets consist

of $5,000 in a checking account, $3,000 in a savings account, $1,500 worth of household

furnishings, and $10,000 in other personal property. Jennifer’s Kia Forte is valued at $4,000 (it is

7 years old but runs fairly well).

Jennifer isn't waiting to repay her debts, before she starts saving. She participates in a 401(k) plan

at her job and contributes 4% of her yearly salary (before taxes) to the plan. She has a current

balance of $2,800 in the 401(k) but she is unsure about whether she has selected the right

investment options. She puts 35% of her deposit in a stock index fund, 50% in aggressive growth

stock, 10% in bonds and 5% in a cash/money market fund. "I wasn't sure what to do," she notes,

"so I made the same choices for my portfolio as my co-worker."

Jennifer is currently saving $200 a month into her savings account at Brooklyn Savings Bank. The

account is currently earning an annual interest rate of 1.5%.

Automatic saving appeals to Jennifer, who confesses a weakness for shopping. She'd like to save

more, both for retirement in her 401(k) plan and for emergencies. "I don't have much to fall back

on if my car breaks down or I have some other emergency," she worries. After repaying her debts

and increasing her savings, Jennifer’s long-term goal is to purchase a home in 7 years. She is

willing to assume some investment risk to achieve a high rate of return to achieve this goal.

Jennifer currently shares an apartment with a roommate. Jennifer’s yearly income is $45,000, and

her take home pay (after contributing $75 per pay period to the company’s 401K and after taxes

are withheld) is $30,000 annually, or $2,500 per month (her job pays its employees on a bi-monthly

basis). Jennifer’s discretionary and non-discretionary expenses are as follows: $400 per month for

rent, $200 per month on her car loan payment (at 5% annual interest), $200 per month towards her

credit card debt (at $18% annual interest), $6,000 per year for tuition, $100 per month for gas and

car maintenance, $100 per month for food, $100 per month for clothing, $150 per month for auto

insurance and $50 per month for entertainment. Last year, Jennifer received a $1,685 tax refund

and spent it on a trip to Disneyworld with her roommate. Jennifer's employer provides a match of

10% of Jennifer’s yearly contribution to her 401(k)-retirement account.

Within the next year, Jennifer would like to increase her savings account balance to $5,000 and

pay off her credit cards. She hopes to advance in her career and is currently taking advanced

computer courses at Brooklyn College. In 7 years, Jennifer believes her take home salary will

increase by 1.5x, and at that time she would like to purchase a condominium. Based on her salary

at that time, she believes she can afford a $100,000 condo and would like to put 20% down and

secure a mortgage for the remaining balance at a rate of around 9% for 30 years. Real estate taxes

on homes in the area she is interested in are currently $3,000 per year and are expected to double

in 7 years, when she is looking to purchase.

Jennifer requests her credit report from all three credit bureaus every year. Her current credit score

is 785, but she found an error on one of the reports.

Jennifer is thinking of trading in her 7-year-old Kia Forte vehicle for a newer car. She recently

went “window shopping” and saw a used 3-year-old Honda with a MSRP of $8,000. After

speaking with the dealer, she was “offered” a rate of 6% for 48 months with a limited warranty on

the car for consideration.

Jennifer is a forward thinker, enjoys her job very much and plans to retire from the company in 40

years. She anticipates that her living expenses at retirement will be approximately $2,000 a month.

Her current 401(k) retirement account is averaging a return of 6% annually.

Jennifer is a big fan and user of Twitter and is interested in purchasing Twitter stock. She

downloaded the following information from Yahoo Finance but is not sure if she should invest

now or wait (as she is unfamiliar with interpreting a stock).

Jennifer has come to you for guidance on her financial condition and development of a financial

strategy.