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Bo and Sherry Wayside met in college. After dating a year, they decided to begin saving money for their future. So, they deposited $5,000 into a savings account earning 4.75% compounding annually. When they completed college, they planned to purchase their dream home. That money was “earmarked” as a sinking fund for their future home purchase. For 5 years, they did not touch the money. They graduated from college, secured jobs, got married, and they are ready to purchase their first home.

Question 1: Since the money sat in their account for 5 years, how much money did Bo and Sherry have saved for a down payment on their “dream home?


Bo and Sherry asked a mutual friend and realtor, Tammy Townhouse, to help them find a new home. First thing Tammy did was arrange for Bo and Sherry to sit down with a local lender to get prequalified for a mortgage loan. Bo and Sherry collected their personal, financial information and met with the lender. Their debt consisted of: monthly car payments: Bo’s was $211 and Sherry’s was $155; and they each have a credit card with a minimum credit card payment of $10 a month. Bo earns $1,800 a month and Sherry earns $1,700 a month. The lender estimated their property taxes and insurance based upon the estimated price of their “dream home”. The estimates were: property taxes were $1,250 a year and home owner’s insurance were $520 a year.

Question 2: The lender used the back-end ratio of 41%, to qualify Bo and Sherry. What was the maximum monthly payment they qualify for?


The lender approved Bo and Sherry for a loan. They found their dream home. They loan was a 4.75%, 30-year mortgage for $135,000 with a monthly payment (PI) of $704.22. The lender required an escrow account. Their new home property taxes were $1,440 per year and their homeowner’s insurance was $725 per year.

Question 3: What was Bo and Sherry’s total monthly payment (PITI).


Question 4: Based on the terms of the loan, how much will Bo and Sherry pay for their home?


Question 5: How much interest will Bo and Sherry pay for the total term of the mortgage loan?


While commuting to work, Sherry was side-swiped by a semi-truck on I-75. Luckily, she was not injured, however, the car was totaled. Bo and Sherry have no choice; but, to purchase a new vehicle. As home owner’s, they decided that a truck would be the more practical transportation option for them. So, after “truck shopping” over a weekend, they purchased a 2017 Ford Ranger for $26,200. Upon arriving at the dealership to sign the loan forms and pick up the truck, they became aware that they were required to pay tax and license fees of $1,700. Bo and Sherry used the insurance settlement from the accident totaling $3,200 as a down-payment on the truck loan. As a result, they borrowed $23,000 at 9% interest for 5 years with monthly payments of $477.44.

Question 6: How much will Bo and Sherry pay for the truck, including tax and license fees and finance charges.


Bo and Sherry called their insurance company to arrange for insurance coverage for the new truck. The insurance company gave them the option to pay the $360 six-month premium now, or with 6 monthly payments of $67.50, starting today.

Question 7: Bo and Sherry decided to take the option to pay with the installment plan, what APR did they pay?


One of Bo and Sherry’s long-term goals was to start their own business. Given Bo’s level of expertise in repairing equipment, they decided to start a repair business and originally estimated that it will take $25,000 to get the business started. They had $5,000 set aside, and decided to deposit, plus and an additional $400 at the end of each month. They deposited the money into an investment account that would earn 6% compounded monthly.

Question 8: How many months did it take Bo and Sherry to save enough money to start their business?


Five years ago, the best decision Bo and Sherry ever made was to start their own business, BAS Equipment Repairs, which had blossomed into a healthy business. Besides offering equipment repair services, they were now selling used equipment and parts. The business is showing a healthy profit and they both work in the business. Last year their gross sales were $240,000; sales returns totaled $1,500; sales discounts were $2,000; beginning inventory, $102,000; cost of goods purchased, $165,000; ending inventory, $108,000; operating expenses, $45,000.

Questions 9-12: Calculate the following financial figures for BAS Equipment Repairs:

  • net sales
  • cost of goods sold
  • gross profit
  • net income.

Given the healthy state of their business, Bo and Sherry decide to evaluation their personal investment portfolio. So far, their biggest financial investment (outside of the business) has been in their home. The annual statistics for home sales in the area estimated the average value of homes in their area had increased over the last 12 years from $135,000 to $180,000.

Question 13: What is Bo and Sherry’s average annual rate of increase on their home based on these statistics?


Question 14: If home values were expected to increase at the same annual rate over the next 12 years. How much will Bo and Sherry’s home be valued in 12 more years?


Bo and Sherry decided to invest in the stock market. They purchased 100 shares of stock in H&R Block at a price of $31.25 per share and incurred brokerage fees of $150.

Question 15: What was the total cost of their investment?


Next, they invested in bonds and bought a $1,000 IBM 7? 23 bond.

Question 16: Assuming that the bond paid interest annually, what is the dollar amount of interest they received each year?


Bo and Sherry are now 30 years old, and they decide it’s well past time to start a retirement plan. They figure that their income for the next 25 years will be sufficient to deposit $500 at the end of each quarter into a retirement plan earning 6% compounded quarterly. After 25 years they will let the money sit for another 10 years, without making additional deposits, until they are 65 years old.

Question 17: What amount will Bo and Sherry have when they turn 55?


Question 18: What amount will Bo and Sherry have when they turn 65?



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