Build the habit of comparing alternatives, evaluating tradeoffs, and explaining your conclusions.
Each chapter previews calculation practice, comparison exercises, and decision-making questions that explore financial and nonfinancial trade-offs.
A $10,000 loan is repaid after one year. Expected inflation is 4% and the borrower risk premium is 3%.
Your tasks: Calculate the nominal rate and total repayment; separate the inflation and risk components; explain why the lender asks for more than $10,000.
Workbook guidance: Simple Interest
You may repay $5,000 today or $5,350 one year from now. Your alternative investment earns 5% annually.
Your tasks: Calculate the future value of keeping the $5,000; compare the two choices; identify the cheaper alternative and discuss liquidity needs.
Workbook guidance: Simple Interest
You are selling your old gaming laptop before college. A classmate offers $1,000 today or $1,080 one year from now. Initially assume 3% inflation and a 4% repayment-risk premium. Then test revised assumptions of 5% inflation and a 5% risk premium.
Your tasks: Calculate the one-year payment required under both sets of assumptions; compare each to the $1,080 offer; quantify the surplus or shortfall. Discuss college expenses, repayment uncertainty, friendship, and whether your choice changes.
Workbook guidance: Simple Interest; complete instructions and assumptions in the supplemental Student Exercise Workbook
Invest $10,000 for 20 years at 7% annual interest.
Your tasks: Calculate simple-interest and compound-interest ending balances; measure the difference and the interest earned in each case.
Workbook guidance: Simple vs. Compound Interest
Compare investing $3,000 now for 25 years versus $3,000 in five years for 20 years, both at 6%.
Your tasks: Calculate each future value; identify the cost of waiting and describe nonfinancial reasons savings might be delayed.
Workbook guidance: Simple vs. Compound Interest
Invest $8,000 at 4%, 6%, and 8%, for 10, 20, and 30 years.
Your tasks: Construct a comparison grid; identify whether rate or time is more influential in your cases; discuss uncertainty about returns.
Workbook guidance: Simple vs. Compound Interest
A $5,000 balance compounds monthly at a 15% APR, with no payments.
Your tasks: Compute the monthly periodic rate, the ending balance after 12 months, and the effective annual yield.
Workbook guidance: APY Calculation
You need a $1,200 laptop. Compare paying cash with charging it to a card at 20% APR and paying the balance after six months.
Your tasks: Calculate the financing cost using the assumptions you choose; compare cash availability and borrowing costs; explain which option you favor.
Workbook guidance: Credit Card Payment
A cardholder makes a $1,000 purchase on day 1 of a 30-day cycle at 18% APR. Compare paying in full immediately, halfway through, or at cycle end.
Your tasks: Use the daily-balance model to test each payment timing; explain statement timing and any grace-period assumptions.
Workbook guidance: Credit Card Payment
The Lexus costs $10,000 more initially, with $442 extra annual fuel, $500 maintenance, and $600 insurance over ten years.
Your tasks: Compute the total incremental nominal cost; model the future value of investing the differences at 6%.
Workbook guidance: Lexus vs. Toyota
Compare a $28,000 new car and an $18,000 used car. Assume maintenance is $600 versus $1,400 annually for five years.
Your tasks: Calculate ownership-cost differences and opportunity cost; discuss reliability, warranty, and safety.
Workbook guidance: Lexus vs. Toyota
Vary the premium car price difference from $5,000 to $15,000 and the investment return from 3% to 8%.
Your tasks: Identify how the cost gap changes; state what nonfinancial benefits would justify the incremental cost to you.
Workbook guidance: Lexus vs. Toyota
Compare starting wages of $45,000 and $65,000, with 2% annual raises, over ten years. Use a 3% discount rate.
Your tasks: Calculate cumulative nominal earnings and present value of earnings; explain why those are different measures.
Workbook guidance: PV of Future Earnings
Career A starts in one year at $48,000 with no student loan; Career B starts in four years at $75,000 but requires $45,000 in borrowing.
Your tasks: Model earnings and education debt consistently; decide which option has greater present value; discuss career satisfaction and flexibility.
Workbook guidance: Picking a Career / PV of Future Earnings
For the same pair of careers, vary wage growth between 1% and 5% and the discount rate between 2% and 6%.
Your tasks: Find assumptions that reverse the ranking; identify which inputs are most uncertain and how you would investigate them.
Workbook guidance: PV of Future Earnings
A student borrows $30,000 at a fixed 6% annual rate to repay over ten years with monthly payments.
Your tasks: Calculate the monthly payment, total payments, and total interest; show how a shorter term changes these amounts.
Workbook guidance: Use Excel PMT and amortization principles
Compare repaying the same $30,000 loan over ten years with repayment over five years.
Your tasks: Determine the payment difference and interest savings; discuss the tradeoff between monthly flexibility and total cost.
Workbook guidance: Use Excel PMT and amortization principles
Compare 4%, 6%, and 8% loan rates. Then add $50 extra principal per month to the 6% case.
Your tasks: Measure the change in total cost and payoff time; discuss whether an emergency fund might take priority.
Workbook guidance: Use Excel loan functions; no dedicated student-loan tab
Invest $10,000 for 35 years at a hypothetical 6% return and 15% retirement tax rate.
Your tasks: Calculate the before-tax future value and after-tax amount; compare with an appropriately modeled taxable alternative.
Workbook guidance: Benefits of Tax Deferral
Compare a fund charging 0.10% annually with one charging 2.50%. Both earn 7% gross before fees over 25 years.
Your tasks: Calculate the difference in terminal wealth; discuss whether any expected benefits could justify the higher fee.
Workbook guidance: Impact of Management Fees
Compare a Roth and traditional contribution at current/retirement marginal tax rates of 12%, 22%, and 30%.
Your tasks: Hold the same pre-tax contribution cost constant; quantify the after-tax outcomes; explain the uncertainty in future tax rates.
Workbook guidance: Roth vs. Non-Roth Account
A home costs $400,000 with a 20% down payment, 3% fixed APR, and 30-year term.
Your tasks: Calculate principal borrowed, monthly payment, first-month interest and principal, and remaining balance after year one.
Workbook guidance: Amortizing Loan
Compare 15- and 30-year fixed loans on the same $320,000 principal using a common hypothetical rate of 5%.
Your tasks: Compute payment and lifetime interest differences; model what happens if the monthly payment savings are invested; discuss cash-flow risk.
Workbook guidance: 15 vs. 30 Year Loan / Opportunity Cost of 15 Yr Loan
Assume a $300,000 outstanding mortgage at 7%, and a proposed refinance at 5.5% with $6,000 closing costs.
Your tasks: Model payment savings for an explicitly chosen remaining term; estimate break-even timing; discuss moving, rate risk, and total interest.
Workbook guidance: Refinance after 5 Yrs
A family expects $500 monthly incremental costs for 18 years, increasing by 3% annually.
Your tasks: Compute nominal spending and present value at a 4% discount rate; compare with a no-inflation case.
Workbook guidance: Kids Financial Obligation
One parent earns $55,000 annually and is considering a three-year career break. Assume 2% wage growth and childcare costs of $18,000 annually if working.
Your tasks: Quantify after-tax and opportunity-cost effects using explicit assumptions; discuss family time, career progression, and preferences.
Workbook guidance: Opportunity Cost of Kids
Vary childcare costs, parental wages, and the length of a career break.
Your tasks: Find the financial break-even point; explain why the option with lower modeled cost may still be preferred.
Workbook guidance: Opportunity Cost of Kids / Kids Financial Obligation
A household has $300,000 mortgage debt, $10,000 final expenses, $6,000 card debt, and $70,000 in available financial resources.
Your tasks: Calculate net immediate cash needs; explain what costs and resources may be missing.
Workbook guidance: Needs Based Insurance
Compare hypothetical term and whole-life premiums over 20 years, and explicitly account for differences in coverage and cash value.
Your tasks: Calculate premium differences and modeled investment alternatives; identify nonfinancial needs that could justify permanent coverage.
Workbook guidance: Needs Based Insurance
An insured parent would otherwise earn $55,000 per year with 2% raises for 20 years; assume annual household spending falls $6,000 after death.
Your tasks: Calculate a discounted estimate of earnings needed to support survivors; vary discount rates and support periods.
Workbook guidance: Replacement of Future Earnings / Spouse Living Expenses
A retiree needs $72,000 annual spending, expects $24,000 in other income, and uses a hypothetical 4% portfolio withdrawal rate.
Your tasks: Calculate the portfolio required to fund the difference; state the limitations of a fixed withdrawal assumption.
Workbook guidance: Retirement Income Estimator / Retirement Portfolio Estimator
Compare investing $250 per month for 30 years with $500 per month for the final 15 years, both using a 6% hypothetical return.
Your tasks: Calculate ending portfolios and contributions; discuss affordability and risk tolerance.
Workbook guidance: Future Value of Investment
Model retirement requirements using 3%, 4%, and 5% initial withdrawal assumptions and annual spending of $60,000, $75,000, or $90,000.
Your tasks: Create a sensitivity table, identify the most demanding case, and explain longevity, inflation, and market-sequence risks.
Workbook guidance: Retirement Portfolio Estimator
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