Personal Finance Assignment: Investment and Retirement Plans

This document presents a comprehensive solution to a personal finance assignment. It begins with an analysis of a condo investment, evaluating its profitability through calculations of annual income, HOA fees, maintenance costs, and property taxes. The solution then computes the equity in both the condo and a home, providing a snapshot of the investor's net worth. Mortgage calculations are performed to determine maximum loan amounts based on different backend ratios. Finally, the assignment analyzes the 401K accounts of two individuals, projecting their future values based on current balances, annual contributions, and interest rates over a 30-year period. The assignment provides a practical application of financial planning principles, including investment strategies, mortgage calculations, and retirement planning.

Running head: PERSONAL FINANCE
Personal Finance
Name of the Student:
Name of the University:
Author’s Note:

1PERSONAL FINANCE
Table of Contents
Solution:...........................................................................................................................................2
Part 1:...........................................................................................................................................2
Part 2:...........................................................................................................................................2
Part 3:...........................................................................................................................................3
Part 4:...........................................................................................................................................3
Part 5:...........................................................................................................................................3
Bibliography:...................................................................................................................................5

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Solution:
Part 1:
Investment in rental property is a smart investment strategy. It gives certain benefits, such
as it becomes a steady source of income as well as expenses incurred on such property is tax
deductible. The value of such property also appreciates which in turn builds up the equity of the
investor. Therefore, in the given case study the investment in the Condominium is a good
investment strategy and profitable also. The condominium is purchased taking a loan of $85,000
at an interest rate of 5.12%. the profitability and the value of equity on such investment can be
analyzed as follows.
Analysis of the investment in Condo:
Annual Rent Revenue $ 15,600
Annual HOA Fees $ (3,600)
Maintenance Costs $ (378)
Property Tax $ (1,750)
Annual income from the Condo $ 9,872
It can be seen from the above calculation that there would be an annual income from the
Condo of $9,872 as well as there would be a tax-deductible amount of depreciation on the equity
value of $85,000.
Part 2:
Computation of the Equity in Condo as on January 1, 2019:
Market Value of the Condo $ 106,250
Less: Balance of Mortgage $ 63,384
Equity Value in Condo $ 42,866

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Part 3:
Computation of the Equity in Home as on January 1, 2019:
Current Market Value of the Home $ 330,000
Less: Balance of Mortgage $ 150,708
Equity Value in Home $ 179,292
Part 4:
Computation of Mortgage Amount:
Annual Rent Revenue $ 15,600
Annual HOA Fees $ (3,600)
Maintenance Costs $ (378)
Property Tax $ (1,750)
Annual income from the Condo $ 9,872
Assuming 80% Loan:
Monthly Income $ 823
Backend Ratio 0.8
Monthly Mortgage Payment $ 658
Maximum Mortgage for 15 Years $ 118,464
Assuming 95% Loan:
Monthly Income $ 823
Backend Ratio 0.95
Monthly Mortgage Payment $ 782
Maximum Mortgage for 15 Years $ 140,676
Part 5:
401 K Account of Courtney:
Current Balance $ 25,000
Annual Contribution $ 10,200
Interest Rate 11.50%
Number of Years 30
Future Value $ 2,889,751

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401 K Account of Robin:
Current Balance $ 17,000
Annual Contribution $ 6,380
Interest Rate 11.50%
Number of Years 30
Future Value $ 1,843,211

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Bibliography:
DeFusco, A.A. and Paciorek, A., 2017. The interest rate elasticity of mortgage demand:
Evidence from bunching at the conforming loan limit. American Economic Journal: Economic
Policy, 9(1), pp.210-40.
McDonald, R.W. and McDonald, I.R.W., ISOURCELOANS LLC, 2016. Mortgage loan data
processing system and method for a loan broker. U.S. Patent Application 14/873,466.