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UNIVERSITY OF NEW ORLEANS

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UNIVERSITY OF NEW ORLEANS

    FIN 1330 PERSONAL FINANCE PROF. ROY FRANC BAAS Student name (please print) ______________________________________________

    Personal Financial Statement Simulation

Rules: Round to whole dollars, show no cents. Align figures to right of cell. Use commas for 000’s. Check your math. When in doubt, ask

    questions.

     Period 1 Period 2 Period 3 CHANGES CHANGES

    ASSETS:

    Checking Accounts $ $ $

    Savings Accounts

    Mutual Funds

    Stocks

    Bonds

    Vehicles and Boats

    Real Estate Personal Residence

    Real Estate Investment. - Commercial

    Real Estate Investment. - Residential

    Life Insurance cash surrender value

    Furniture, HHG, electronics

    Other personal assets, clothing, jewelry

    TOTAL ASSETS $ $ $

    LIABILITIES:

    Credit Cards & Charge Accounts

    Other Short-term Debt

    Real Estate Debt

    TOTAL LIABILITIES $ $ $

    NET WORTH (Assets Liabilities ) $ $ $ 2010-11-22 ? 2001 Roy Franc Baas

    FIN 1330 PERSONAL FINANCE

    PERSONAL FINANCIAL STATEMENT SIMULATION

    PERIOD 1 PERIOD 2 ASSETS: Checking Savings Mutual Funds Stocks Bonds Vehicles and Boats Real estate - residence Real estate Investment. - commercial Real estate Investment. - residential Life Ins cash surrender value Automobiles Furniture, HHG, electronics Other personal assets, clothing, jewelry

    TOTAL ASSETS

    LIABILITIES: Credit Cards & Charge Accounts Other Short-term Debt Real estate Debt

    TOTAL LIABILITIES

    NET WORTH (Assets Liabilities)

    2010-11-22 ? 2001 Roy Franc Baas

    FINANCE 1330 PERSONAL FINANCIAL STATEMENT ( aka BALANCE SHEET ) SIMULATION

    HOW THE SIMULATION WORKS

    1. Purpose of the Simulation. The purposes of this exercise are to teach students how to select categories of assets for investment, track the values of assets and related debt, and determine Net Worth.

    2. Starting the Simulation. Each students starts out with Total Assets of $100,000. This $100,000 can be allocated among any or all of the asset categories listed on the simulation, so long as the total does not exceed $100,000.

    3. Real Estate. Students may allocate part of their initial $100,000 to one or more of the three Real Estate categories shown, but they are not required to allocate anything to Real Estate. Since in the real world most real estate assets are acquired with a cash

    down payment of about 20% and borrowed funds of 80%, if you choose to invest in Real Estate, you must also take on the related debt. Therefore, for all Real Estate assets included in the original $100,000 allocation, you must also record Real Estate Debt in

    the Liabilities section. The amount of Real Estate Debt shall be 80% of the total value of Real Estate assets. For example:

    (i) If you decide to allocate $60,000 of your $100,000 to Real Estate assets, then the amount of Real Estate Debt

    you must enter in the Liabilities section will be $48,000 (80% x $60,000).

    (ii) If you decide to allocate $40,000 of your $100,000 to Real Estate assets, then the amount of Real Estate Debt

    you must enter in the Liabilities section will be $32,000 (80% x $40,000).

    (iii) If you decide to allocate $25,000 of your $100,000 to Real Estate assets, then the amount of Real Estate Debt

    you must enter in the Liabilities section will be $20,000 (80% x $25,000).

4. Leveling the Playing Field at the Beginning of the Simulation. As subtle compensation to those students who

    courageously take on real estate debt in the process of investing in Real Estate assets, the simulation allows these risk-taking

    students to increase their original $100,000 assets by an arbitrary amount equal to one-half of the amount of real estate debt they

    now owe. But, the increased amount which can be added to Assets cannot be added to Real Estate. It can be added to any

    category of asset except Real Estate. For example:

    (i) You invested $60,000 in Real Estate and must show $48,000 in Real Estate Debt. You can now add an

    additional $24,000 to any asset categories except Real Estate. This $24,000 is an arbitrary amount equal to one-

    half of your original Real Estate Debt. Your Total Assets at the start of the simulation will now be $124,000, but your

    Real Estate assets will start at $60,000 and Real Estate Debt will start at $48,000.

    (ii) You invested $40,000 in Real Estate and must show $32,000 in Real Estate Debt. You can now add an

    additional $16,000 to any asset categories except Real Estate. This $16,000 is an arbitrary amount equal to one-

    half of your original Real Estate Debt. Your Total Assets at the start of the simulation will now be $116,000, but

    your Real Estate assets will start at $40,000 and Real Estate Debt will start at $32,000.

    (i) You invested $25,000 in Real Estate and must show $20,000 in Real Estate Debt. You can now add an

    additional $10,000 to any asset categories except Real Estate. This $10,000 is an arbitrary amount equal to one-

    half of your original Real Estate Debt. Your Total Assets at the start of the simulation will now be $110,000, but your

    Real Estate assets will still start at $25,000 and Real Estate Debt will start at $20,000.

    5. Hand-In Assignments. After completing the initial financial statement, students will hand-in the results for Period 1. Once reviewed by your professor, these will be returned to you for further simulation activity. Thereafter, the updated financial statement

    will be handed in as cited in the next paragraph.

6. Periodic Changes Based on Simulated Economic Conditions. Each Simulation Period is equal to one calendar year in

    real life. Once each month during the semester, your professor will announce annual changes in the values of the assets and

    amounts of liabilities, thereby affecting your Net Worth. These changes will be given to you as percentage increases or decreases, or as specific dollar changes. You will be required to apply the changes to the figures for the previous Period and show

    the revised values and amounts for the new Period. After each announcement of changes, students are required to hand in the completed financial statement.

    7. Hand-in Due Dates. The hand-in assignments will be due at class immediately following the announcement of changes. All revised financial statements must be handed in on the due dates for credit to be given for the assignment.

    8. Lesson to Be Learned. By the end of the semester, students will will have experienced changes in their assets, liabilities, and net worth, similar to those experienced in real life, and will have learned how to use a financial statement.

    GOOD LUCK!

    2010-11-22 ? 2001 Roy Franc Baas

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