Archive of Today in FRM 660


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Archive of Today in 660

January 22

  • Quizzes will be returned at the END of each group Tuesday. I made some changes in the scoring of the Life Cycle Savings question, and we gave credit for 2 double jeopardy questions — the income tax refund and the combined mtr questions. (e.g., if you got the federal mtr wrong but correctly added your answer to that to the state mtr to get the combined mtr, we gave you credit.)

    We did not give credit to other double jeopardy questions because it would have been too time consuming to do so.

    Note on Life Cycle Savings question –some students had irrelevant answers, e.g., debts, needs

    The only “needs” the program really considers are withdrawals and children. However, children arriving or departing only make a small impact compared to income increases — see page 176.

    In order to get full credit, you had to mention the fact that income was projected to increase from age 37 to age 66 — everything else is either minor (children) or backwards (could not afford to save because of debt)

    Paying off debt is a form of savings. In fact, if you run the LCS program, the higher the initial debt, the higher the suggested annual savings % will be.

    Compared to the posting of 660 scores the other day, many of the scores increased and some decreased. We will not post updated scores until next Tuesday.
  • Suggested focus for oral presentations

Today in 660

January 21

January 21

  • Discuss with your client how to project income and taxes for 2001 (sheet D) — use the most recent paystub and take account of likely pay increases. Example — if income will increase 5% in June, multiply monthly gross earnings by 12.3 (6 months at present rate + 6 months @ 5% more)
  • you need to enter taxes withheld for 2000 in sheet C — and make sure that the same numbers show up in sheet E, cells G4-G14
  • I just updated the example W2 form and added an example paystub — even if your client gives you a copy of the W2 form, it is very useful to have the last paystub of 2000. You should enter some items such as medical insurance and union dues on sheet A.

    If you already downloaded the finstate file you might have noticed a little problem with the cell B19 on sheets C and D — the cell will not be automatically updated (this should be OK if you download it now.) Do not worry if you already input numbers — just enter the total amount.
  • Note that in the finstate Excel file for Assignment 4, in sheet C, you must enter gross income for 2000 , as well as the amounts prepaid (e.g., withheld) in 2000 for federal, state, and local taxes and for FICA and for any mandatory pension contributions, e.g., PERS.)

    In sheet D you must also project gross income for 2001 , as well as the amounts to be prepaid (e.g., withheld) in 2001 for federal, state, and local taxes and for FICA and for any mandatory pension contributions, e.g., PERS.)
    You should either use the client’s W2 form (best — see
    W2 illustration discussed in lecture, or,

    if your client has not received a W2 form, use your client’s paystub at the end of December — most employers include the cumulative earnings and income&payroll taxes withheld on that paystub.

    If the last paystub did not include cumulative amounts, estimate federal, state, and local income taxes withheld in 2000 by multiplication from the paystub

    NOTE: for gross income, note differences between totals for federal income and state income and local income

    As for 2001, if client has not yet received a paycheck in 2001, simply multiply amounts from last paycheck to project, adjusting for expected increases, job changes, etc.

January 20

January 19

  • Posting of scores, including tentative quiz scores, by random number (on page returned with assignments Jan. 18
  • Answer keys to the quiz will be posted sometime this weekend.
  • If you downloaded Assignment or Critique Word files before Jan. 19, please download new versions
  • For Assignment 4, you will need to download both the spreadsheet and answer the questions on the Assignment 4 Word file
    Note that the Assignment 4 guide in the Copez packet (pp. 14-15) is up to date, but if you downloaded the Word file before 10:40 PM Jan. 18, the instructions were not updated, e.g., 1998 instead of 1999.
  • Update of questions in Assignment 4 Word file (Or you can just download the updated Word file
  • Overview of financial ratios Note that your discussion of emergency funds for your client should include your calculation of the liquidity ratio

    To calculate the Liquidity Ratio (number of months of emergency fund adequacy), divide monetary assets (12/31/2000) by the total projected MONTHLY expenses for the year 2001. Monetary assets are liquid assets that can easily converted to cash or otherwise used to pay bills, without a risk of loss.
    Monetary assets include cash, checking accounts, savings bonds, certificates of deposit, insurance cash value, and money market accounts.
  • Note that Question 4 of Assignment 4 is:

    4. Do the following analysis of your client’s emergency fund status. Show your calculations. (5 points)

    a) Calculate the present emergency fund; identify the assets that comprise this fund.

    ….. In other words, calculate the Liquidity Ratio as shown above

    b) Evaluate the adequacy of the present emergency fund and make recommendations. Justify your recommendations. (Example: if
    the client does not meet the 3 to 6 month guideline {ratio less than 3.0} discuss whether a credit line or borrowing from family
    members would be an acceptable alternative.)

    Ask your client what realistic and acceptable alternatives would be if income stopped. If there are none then if there is some chance that income might stop, your client’s liquidity ratio should be at least 3.0.

January 18

  • Life Cycle Savings program screen Note that when you see this screen, you can click on the tab for “print table” for the Lifetime Savings Recommendations” and then click on the “Print Gross Income by Age” to obtain the Gross Income by Age table.

    You reach this screen from the previous screen by clicking on the upper right tab “Savings Recommendation (Lifetime)”
  • 8:00 PM
  • If you included a gross income GRAPH for Assignment 3 and lost all 20 points, Tuesday you can give your group leader Assignment 3 with the gross income TABLE and get more points — perhaps all if you were otherwise perfect. No second chance at the points if you included neither a gross income graph nor a table.

    Just make sure you have everything for Assignment 7.
  • A new version of the Life Cycle Savings program will be installed in the labs — if you entered investment income in the old version, there might have been double counting. The new version also solves the itemized deduction problem posted earlier in the quarter.

    If and only if you have already installed a version of the program that lists October 2000 or later on the opening screen, you can download the new exe file and copy into your Lifecyc directory. Please only do this if you are sure you already have a working version of the program.
  • We will post answer keys to the two different versions of the quiz — probably late Friday afternoon.
  • Sometime this weekend I expect to post the scores, listed by the random numbers on the separate page in your returned assignments. (How fast I post the scores depends on whether I decide to give partial credit on one or more questions.)
  • On the Ohio Income Tax question, if you calculated the income tax correctly before credits, you will lose no more than one point.

    If you correctly calculated the Ohio income tax after the personal credit of $40, you will get full credit.

    In order to calculate the joint filing credit, you would have had to have taken good notes during lecture — at that income level, it was 5% of the tax before credits. See below, which is what I discussed in lecture.
  • If your Ohio taxable income (line 5) is:

    $25,000 or less — Your credit is: 20% of line 8

    More than $25,000

    but not more than $50,000 — Your credit is: 15% of line 8

    More than $50,000

    but not more than $75,000 — Your credit is: 10% of line 8

    More than $75,000 — Your credit is: 5% of line 8

    The credit is limited to a maximum of $650.

  • 10 AM
  • Note that on the answer key to Quiz 1, Spring 2000, there was a small error for the final calculation formula on the last question — although the calculation itself was correct.

    Correct formula: True expenses = expenses from I/E statement + estimate of Missing Expenses

    In this example, the missing expense number was negative.

    B. Assuming that all of the balance sheet items are accurate, what were his true expenses (not counting income and payroll taxes ) in 1999? (10 points)

    missing expenses = predicted NW (12/31/99) – actual NW (12/31/99) = 11500-12800 = -1300

    so, true expenses = expenses from I/E statement + missing expenses = 38000 + (-1300) = 38000-1300 =$36,700

January 17

  • Some students have reported problems with the Excel file for Assignment 4 I think I fixed it, so if you run into a problem, try downloading the file again. Let me know if you have a problem.
  • I forgot to change the instructions on the Assignment 3 worksheet — I meant to specify year 2001 gross income — year 2000 income does not make sense. If your client’s year 2001 income is very different from the year 2000 income, please rerun the Life Cycle Savings program by the time Assignment 7 is due.
  • Frequent errors on Assignment 4

  • Example of important information in your client’s W2 form

  • Next Tuesday, please staple or paper clip your assignments BEFORE your group session. Students who are disorganized will lose presentation points.

    Students who are more than 5 minutes late will lose all of the presentation points.

    Students who arrive after the first student is done presenting can present, but they will not be assigned to critique anyone, and therefore will lose possible critique points.
  • Reminder: bring your Copez packet to Thursday lectures.

Archive of previous items in Today in 660