# Accounting: Providing financial planning advice for the given situation.

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Jan and Mickey Haggerty graduated from college several years ago. Each majored in biology, and they were fortunate to receive good job offers at graduation; their combined income last year was over $100,000. The Haggertys enjoy a high level of current consumption, but they also have saved about $6000, which is invested in a bank savings account. They would like to buy a house eventually, but they are not certain when. Jan thinks they should have a definite plan for buying the house. This plan would indicate the date of purchase, the down payment, the expected purchase price, and other important details. Jan is so enthusiastic over the purchase that she thinks they should take their money out of savings and invest in growth stocks. She has heard that they ought to get 20% on these stocks, which certainly beats the 5% they are getting at the bank.

Mickey thinks Jan worries too much about buying a house. He questions the necessity of a financial plan, believing instead that they should just continue saving in the future as they have in the past. Besides, he heard that a work recession could be coming, and, if it does, he thinks it might be a good idea to delay buying stocks until their prices come way down. He heard you make money in the stock market by buying low and selling high. Jan would like to buy the house within five years; Mickey thinks setting a date is not wise. If the stocks work out well, they can get it sooner; if not, they have to wait. Besides, a friend of Mickey's told him he should worry more about all the income taxes he and Jan are paying, since they already are in a 28% tax bracket.

1. Without knowing more about the Haggertys, would you say they might benefit from financial planning? Cite specific examples.

2. What do you think of Jan's idea of investing in growth stocks? What additional information about the Haggertys would you like to have before you give a final answer to this question?

3. What is your opinion of Mickey's idea to delay buying common stocks until their prices fall? Do you think his source of information at work is a reliable forecaster? And do you think it's a good idea in general to base the success of your financial plans on accurately forecasting future economic events? Explain.

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##### Solution Summary

Financial planning is analyzed for a given situation.

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1. Not definitely. Jan should consider the probability that she can't get 20% on stocks. For example, she can invest $1,000 in growth stocks with a probability of 20% but actually get 4% on these stocks which is less ...

###### Education

- BSc , Wuhan Univ. China
- MA, Shandong Univ.

###### Recent Feedback

- "Your solution, looks excellent. I recognize things from previous chapters. I have seen the standard deviation formula you used to get 5.154. I do understand the Central Limit Theorem needs the sample size (n) to be greater than 30, we have 100. I do understand the sample mean(s) of the population will follow a normal distribution, and that CLT states the sample mean of population is the population (mean), we have 143.74. But when and WHY do we use the standard deviation formula where you got 5.154. WHEN & Why use standard deviation of the sample mean. I don't understand, why don't we simply use the "100" I understand that standard deviation is the square root of variance. I do understand that the variance is the square of the differences of each sample data value minus the mean. But somehow, why not use 100, why use standard deviation of sample mean? Please help explain."
- "excellent work"
- "Thank you so much for all of your help!!! I will be posting another assignment. Please let me know (once posted), if the credits I'm offering is enough or you ! Thanks again!"
- "Thank you"
- "Thank you very much for your valuable time and assistance!"

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