Question 1. Explain the difference between investing and saving.
Question 2. List, and explain, three motivations for investing.
Question 3. Using automobiles as an analogy, explain the difference between the primary market and secondary market.
Question 4. Tom has come to you for some help in organizing his affairs. He has supplied you with the following information and asked you to prepare a net worth and annual income statement for him.
Tom is 35 years old, makes $36,000 (after payroll deductions) per year from his job, and receives interest of $390 per year from miscellaneous investments.
Tom has been tracking his expenses and has given you the following estimates:
• mortgage payments, including property taxes and interest, $5,886 ($3,094 is interest)
• groceries $4,800
• holidays $3,500
• car payments, including interest, $4,778 ($958 is interest)
• utilities $3,000
• house and car insurance $1,600
• gas and car maintenance $2,800
• life and disability insurance premiums $400
• house maintenance $1,500
• household expenses $600
• medical and dental expenses $400
• entertainment and lunches $5,500
• gifts $1,400
• clothing $3,400
• miscellaneous expenses $3,200.
Tom has the following debt:
• credit cards with balances owing $2,800
• line of credit $5,000
• mortgage $62,000
• car loan $18,500.
Tom also has estimated the following:
• value of house $100,000
• cash in bank $1,800
• CSBs $8,000
• furnishings and other personal assets $18,000
• car $20,000
• RRSP $28,500.
Tom would like to increase his contributions to his RRSP, but often finds cash is tight, last year he could only contribute $3,000.
Prepare a net worth and annual income statement for Tom.
5. How much income tax would Tom have to pay in 2000 if his taxable income was $52,000? Assume Tom is an Alberta resident, and ignore flat, surtaxes and personal exemptions. Deduct the RRSP contribution in computing taxable income.