Jim and Diane Frost saw an increase in their net worth from $320,000 to $380,000
ID: 2729586 • Letter: J
Question
Jim and Diane Frost saw an increase in their net worth from $320,000 to $380,000 for the year. During the year, they paid $18,000 in mortgage principal and interest. Jim invested $3,500 in a mutual fund by automatic payroll deduction. Diane contributed $3,000 to an IRA from her savings account. She made deposits from her salary of $2,500 to a money market account. Their investment assets grew by $49,000. What amount of principal reduction occurred in the Frosts’ home mortgage A) $2,000 B)$5,000 C)$7,000 D)$11,000
Explanation / Answer
Answer:
We can see from above that total increase in net worth due to increase in assets is $58,000.
Total increase in net worth = Total increase in net worth due to increase in assets + Total increase in net worth due to decrease in liability
60,000 = 58,000 + Total increase in net worth due to decrease in liability
Total increase in net worth due to decrease in liability = 60,000 - 58,000 = $2000
Principal reduction occurred in the Frosts’ home mortgage = $2,000 (Option A is correct).
Amount $ Increase in mutual fund investment 3500 Increase in IRA investment 3000 Increase in money market account 2500 Growth in investment 49000 Total increase in net worth due to increase in assets 58000Related Questions
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