Taylor has the following assets and liabilities: $$\begin{array} { l | r }
\text { Two cars } & \$ 15,000 \
\text { House } & \$ 400,000 \
\text { Mortgage } & \$ 300,000 \
\hline \text { Cash } & \$ 1,000 \
\text { Car loars } & \$ 5,000 \
\hline \text { Checkire accourtbalarce } & \$ 3,000 \
\text { Credit card balarce } & \$ 3,000
\end{array}$$
Suppose that Taylor receives a $10,000 bonus from her employer. If she puts that money toward her mortgage, her wealth would ________; if she puts that money in her checking account, her wealth would ________.
A)increase to $121,000; decrease to $101,000
B)increase to $115,000; decrease to $95,000
C)increase to $121,000; increase to $121,000
D)increase to $115,000; increase to $115,000

Question

Taylor has the following assets and liabilities: $$\begin{array} { l | r } 
\text { Two cars } & \$ 15,000 \
\text { House } & \$ 400,000 \
\text { Mortgage } & \$ 300,000 \
\hline \text { Cash } & \$ 1,000 \
\text { Car loars } & \$ 5,000 \
\hline \text { Checkire accourtbalarce } & \$ 3,000 \
\text { Credit card balarce } & \$ 3,000
\end{array}$$  
Suppose that Taylor receives a $10,000 bonus from her employer. If she puts that money toward her mortgage, her wealth would ________; if she puts that money in her checking account, her wealth would ________.
A)increase to $121,000; decrease to $101,000
B)increase to $115,000; decrease to $95,000
C)increase to $121,000; increase to $121,000
D)increase to $115,000; increase to $115,000

Quizplus · Accepted Answer

Wealth is calculated as assets minus liabilities. Initially, Taylor's assets are $15,000 (cars) + $400,000 (house) + $1,000 (cash) + $3,000 (checking account) = $419,000. Her liabilities are $300,000 (mortgage) + $5,000 (car loans) + $3,000 (credit card balance) = $308,000. Thus, her initial wealth is $419,000 - $308,000 = $111,000. If she puts the $10,000 bonus towards her mortgage, her mortgage decreases to $290,000, making her new liabilities $290,000 + $5,000 + $3,000 = $298,000, and her wealth increases to $419,000 - $298,000 = $121,000. If she puts the $10,000 in her checking account, her assets increase to $429,000, and her wealth also increases to $429,000 - $308,000 = $121,000. Therefore, in both scenarios, her wealth increases to $121,000.

Taylor Has the Following Assets and Liabilities Suppose That Taylor Receives a $10,000 Bonus from Her Employer