1. Suppose you are asked to advise a risk-avert individual who is to invest $50 million for six month either in the U.S. or in U.K. Given the following information, where would you advise her/him to invest? Annual rate of interest in the US, iu.s. = 4%; annual rate of interet in UK, iu.k. = 5%; Spot exchange rate =1.8 dollars per pound; and six month forward exchange rate = 1.6 dollars per pound.

Let the following equations represent a model of an economy.

                        1. Y = C + I + G + X - M

                        2. C = 100 + 0.8Y

                        3. I = 200

                        4. G = 250

                        5. X = 100

                        6. M = 50 + 0.05Y

            a. How much is equilibrium income and open economy multiplier?

            b. Is the balance of payments in surplus or deficit?

            c. By how much do we need to change G in order to have a balance of payments         

                 equilibrium?

            d. What will be the impact on Y and the trade balance if exports increase by 10 (say

                due to an increase in foreign demand) and Fed cuts the discount rate which results

                in an increase in investment by 10 and an increase in autonomous consumption by

               10.

The multistate Powerball Lottery, worth $182 million, was won by a single individual who had purchased five tickets at $1 each. The winner was given two choices: Receive 26 payments of $7 million each, with the first payment to occur now and the rest to be sent at the end of each of the next 25 years; OR receive a single lump-sum payment today that would be equivalent to the 26 payments of $7 million each. If the lottery uses an interest rate of 4%/yr/yr, find the amount of the lump sum payment.

PERSONAL TAXES

Mary Jarvis is a single individual who is working on filing her tax return for the previous year. She has assembled the following relevant information:

• She received $121,000 in salary.
• She received $10,500 of dividend income.
• She received $3,500 of interest income on Home Depot bonds.
• She received $23,500 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $6,300.
• She received $8,000 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $7,600.
• Mary receives one exemption ($4,000), and she has allowable itemized deductions of $7,500. These amounts will be deducted from her gross income to determine her taxable income.

Assume that her tax rates are based on Table 3.5.

1. What is Mary's federal tax liability? Round your answer to the nearest cent. Do not round intermediate calculations.
   $  
   
2. What is her marginal tax rate? Round your answer to 1 decimal place.
        %
   
3. What is her average tax rate? Round your answer to 2 decimal places.
        %

Simpson, age 45, is a single individual who is employed full-time by Duff Corporation. This year Simpson reports AGI of $69,600 and has incurred the following medical expenses:

a. Calculate the amount of medical expenses that will be included with Simpson's itemized deductions after any applicable limitations.

b. Suppose that Simpson was reimbursed for $250 of the physician's charges and $1,200 for the hospital costs. Calculate the amount of medical expenses that will be included with Simpson's itemized deductions after any applicable limitations.

Roth IRA Worksheet Lainey Wilkinson is a 36 years old individual who works at a local library. She starts to invest $3,000 per year this year in a “Roth IRA”. For investments in a Roth IRA, you will never pay taxes on the interest/dividends/profits. Assume that her investments will make 8% annually until her retirement. I. How much will be there in Lainey’s IRA account when she retires at 66. II. Assuming that Roth IRA makes 7% annual return after retirement and she can make annual withdrawal, how much will she be able to withdraw per year if she plans to withdraw all the fund from Roth IRA in a) 15 years, b) 20 years, and c) 25 years. Use the attached worksheet 2.

Simpson, age 45, is a single individual who is employed full-time by Duff Corporation. This year Simpson reports AGI of $69,200 and has incurred the following medical expenses:

a. Calculate the amount of medical expenses that will be included with Simpson's itemized deductions after any applicable limitations.

b. Suppose that Simpson was reimbursed for $250 of the physician's charges and $1,200 for the hospital costs. Calculate the amount of medical expenses that will be included with Simpson's itemized deductions after any applicable limitations.

1. In 2019, Taxpayer (“T”) is a single, 65 year-old individual who is a U.S. citizen. T turned 65 in 2019.    T receives $18,000 of social security income in 2019 (the first year T received Social Security Benefits). Also, T received $6,000 of interest income from a municipal bond in both 2018 and 2019. On June 1, 2018, T took a job with a multi-national corporation which paid T $5,000 per month. As a condition of the job, T is required to work overseas, in the country of Austria, and T did in fact work in Austria for 214 days (From June 1 – December 31) in 2018. T is offered to continue to work (still in Austria and still for $5,000 per month) for seven additional months (from January 1 until the end of July, which is 211 days) in 2019, at which point T’s position would terminate. T is trying to decide whether T wants to continue to work for seven months in 2019 or quit on January (These are T’s only transactions during 2018 and 2019).

1. What is T’s Gross Income in 2019 if T continues to work through July of 2019?

__________________________________

2. What is T’s Gross Income in 2019 if T does NOT continue to work in 2019?  

__________________________________

3. Excluding the effects of the payroll tax and any credits, What is the economic benefit to T of continuing to work for 7 months in 2019 (meaning how much total extra money, after tax, will T have as a result of continuing to work in 2019)?

_____________________

7. In 2019, Taxpayer (“T”) is a single, 65 year-old individual who is a U.S. citizen. T turned 65 in 2019. T receives $18,000 of social security income in 2019 (the first year T received Social Security Benefits). Also, T received $6,000 of interest income from a municipal bond in both 2018 and 2019. On June 1, 2018, T took a job with a multi-national corporation which paid T $5,000 per month. As a condition of the job, T is required to work overseas, in the country of Austria, and T did in fact work in Austria for 214 days (From June 1 – December 31) in 2018. T is offered to continue to work (still in Austria and still for $5,000 per month) for seven additional months (from January 1 until the end of July, which is 211 days) in 2019, at which point T’s position would terminate. T is trying to decide whether T wants to continue to work for seven months in 2019 or quit on January 1. (These are T’s only transactions during 2018 and 2019). a. What is T’s Gross Income in 2019 if T continues to work through July of 2019? __________________________________

b. What is T’s Gross Income in 2019 if T does NOT continue to work in 2019? __________________________________

c. Excluding the effects of the payroll tax and any credits, What is the economic benefit to T of continuing to work for 7 months in 2019 (meaning how much total extra money, after tax, will T have as a result of continuing to work in 2019)?

Simpson is a single individual who is employed full-time by Duff Corporation. This year Simpson reports AGI of $57,000 and has incurred the following medical expenses:

a. Calculate the amount of medical expenses that will be included with Simpson’s itemized deductions after any applicable limitations.

b. Suppose that Simpson was reimbursed for $640 of the physician's charges and $1,495 for the hospital costs. Calculate the amount of medical expenses that will be included with Simpson’s itemized deductions after any applicable limitations.Calculate how much Dan can deduct for taxes as an itemized deduction this year.

Calculate how much Dan can deduct for taxes as an itemized deduction this year.

1. In 2019, Taxpayer (“T”) is a single, 65 year-old individual who is a U.S. citizen. T turned 65 in 2019.    T receives $18,000 of social security income in 2019 (the first year T received Social Security Benefits). Also, T received $6,000 of interest income from a municipal bond in both 2018 and 2019. On June 1, 2018, T took a job with a multi-national corporation which paid T $5,000 per month. As a condition of the job, T is required to work overseas, in the country of Austria, and T did in fact work in Austria for 214 days (From June 1 – December 31) in 2018. T is offered to continue to work (still in Austria and still for $5,000 per month) for seven additional months (from January 1 until the end of July, which is 211 days) in 2019, at which point T’s position would terminate. T is trying to decide whether T wants to continue to work for seven months in 2019 or quit on January (These are T’s only transactions during 2018 and 2019).

1. What is T’s Gross Income in 2019 if T continues to work through July of 2019?

__________________________________

2. What is T’s Gross Income in 2019 if T does NOT continue to work in 2019?  

__________________________________

3. Excluding the effects of the payroll tax and any credits, What is the economic benefit to T of continuing to work for 7 months in 2019 (meaning how much total extra money, after tax, will T have as a result of continuing to work in 2019)?

_____________________