Surprise! Jamie Lee and Ross were stunned to find that their family of two has grown to a family of five! They were expecting twins until they found out the day they were born that they were actually the parents of triplets! Ross immediately had worries of being able to provide for the growing family: diapers, formula, college expenses times three! What if something happened to him or Jamie Lee? How would the surviving parent be able to provide for such a large family? Current Financial Situation: Assets (Jamie Lee and Ross combined): Checking account: $2,500 Savings Account: $16,000 Emergency Fund savings account: $19,100 IRA balance: $25,000 Car: $11,500 (Jamie Lee) and $19,000 (Ross) Liabilities (Jamie Lee and Ross combined): Student loan balance: $0 Credit Card Balance: $3,500 Car Loans: $7,000 Income: Jamie Lee: $45,000 gross income ($31,500 net income after taxes) Ross: $73,000 gross income ($60,800 net income after taxes) Monthly Expenses Mortgage: $1,225 Property taxes: $400 Homeowner’s insurance: $200 Utilities: $160 Food: $500 Gas/Maintenance: $275 Credit Card Payment: $275 Car Loan Payment: $289 Entertainment: $125 Questions: 1. Within days of the triplets arrival, Jamie Lee and Ross began researching and comparing various agencies for the purchase of a life insurance policy. What characteristics should Ross look for when choosing a life insurance agency? What sources could he reference for help when choosing a life insurance agency? 2. Jamie Lee and Ross need to ensure that the surviving spouse and the children will not have financial hardship in the event of a loss. Using the Easy Method and considering Ross’ salary in the calculation, how much life insurance will they need? 3.With so many policy variations to choose from, Ross and Jamie Lee are unsure which company is offering the most competitive rates. How will they be able to compare the rates between the various companies? 4. Jamie Lee and Ross have a limited budget for the life insurance necessity now that they have the additional present-day expenses of the triplets to consider. What type of life insurance would you recommend for the family at this life stage and what are its associated advantages and disadvantages?
> Becky Fenton has 25/50/10 automobile insurance coverage. If two other people are awarded $35,000 each for injuries in an auto accident in which the insured was judged at fault, how much of this judgment would insurance cover?
> For each of the following situations, what amount would the insurance company pay? a. Wind damage of $835; the insured has a $500 deductible. b. Theft of a stereo system worth $1,150; the insured has a $250 deductible. c. Vandalism that does $425 of dam
> If Carissa Dalton has a $130,000 home insured for $100,000, based on the 80 percent coinsurance provision, how much would the insurance company pay on a $5,000 claim?
> What would it cost an insurance company to replace a family’s personal property that originally cost $25,000? The replacement costs for the items have increased 15 percent.
> Assume that you purchased a $1,000 convertible corporate bond. Also assume the bond can be converted to 38.4615 shares of the firm’s stock. What is the dollar value that the stock must reach before investors would consider converting to common stock?
> A health insurance policy pays 65 percent of physical therapy cost after a $200 deductible. In contrast, an HMO charges $15 per visit for physical therapy. How much would a person save with the HMO if he or she had 10 physical therapy sessions costing $5
> Twelve months ago, you purchased 10-year Treasury notes with a face value of $1,000. The interest rate is 2.90 percent. What is the annual dollar amount of interest you will receive each year?
> Assume that three years ago you purchased a corporate bond that pays 5.8 percent. The purchase price was $1,000. What is the annual dollar amount of interest that you receive from your bond investment?
> Assume you are in the 35 percent tax bracket and purchase a 3.75 percent municipal bond. Use the formula presented in this chapter to calculate the taxable equivalent yield for this investment.
> Assume you are in the 28 percent tax bracket and purchase a 3.50 percent municipal bond. Use the formula presented in this chapter to calculate the taxable equivalent yield for this investment.
> Based on the following information, construct a graph that illustrates price movement for a Washington Utilities bond fund. $16.50 February $15.50 $17.20 $18.90 $19.80 January July August September $14.00 $13.10 $15.20 $16.70 $18.40 March April May
> Use the information in the Figure It Out! Box earlier in this chapter to complete the following table.
> Determine the current yield on a corporate bond investment that has a face value of $1,000, pays 4.60 percent, and has a current price of $950.
> Shaan and Anita currently insure their cars with separate companies, paying $650 and $575 a year. If they insure both cars with the same company, they would save 10 percent on the annual premiums. What would be the future value of the annual savings o
> Stephanie was involved in a car accident and rushed to the emergency room. She received stitches for a facial wound and treatment for a broken finger. Under Stephanie’s PPO plan, emergency room care at a network hospital is 80 percent covered after the
> Dave and Ellen are newly married and living in their first house. The yearly premium on their homeowners insurance policy is $450 for the coverage they need. Their insurance company offers a 5 percent discount if they install deadbolt locks on all exteri
> Jane and Bill Collins have total take-home pay of $4,500 a month. Their monthly expenses total $3,400. Calculate the minimum amount this couple needs to establish an emergency fund.
> Match the following terms with an appropriate statement. waiting or elimination period a. A specified period during which benefits are paid. duration of benefits b. A plan that guarantees coverage as long as you continue to pay your premiums. guarantee
> What are the four sources of disability income?
> What is the purpose of disability income insurance?
> Match the following terms with an appropriate statement. Blue Cross a. A medical assistance program offered to certain low-income individuals and families. Blue Shield b. Combines features of both HMOs and PPOs. HMOs c. Statewide organization that prov
> What are the six sources of private health plans?
> What health care services are not covered by Medicare?
> Match the following terms with an appropriate statement. reimbursement a. A policy that will cover only a fixed amount or a expense. Indemnity b. A policy that pays you back for actual expenses. internal limits c. A policy that provides you with spe
> As you decide which health insurance plan to buy, what trade-offs would you consider?
> What basic features should be included in your health insurance plan?
> Match the following terms with an appropriate statement. /
> 1. Jamie Lee is considering a used vehicle, but cannot decide where to begin her search. Using Your Personal Financial Plan Sheets #19, name the sources available to Jamie Lee for a used car purchase. What are the advantages and disadvantages of each?
> What benefits are provided by a. Hospital expense coverage? b. Surgical expenses coverage? c. Physician expense coverage?
> What three types of coverage are included in the basic health insurance?
> What is health insurance?
> For each of the following statements, circle “T” for true or “F” for false. a. Health insurance is available only as a benefit from an employer. b. You can continue your health insurance even if you leave a job.
> What are three ways of purchasing health insurance?
> In the space provided, write “A” if you agree with the statement, “D” if you disagree. a. Motor vehicle insurance is not cheap. b. The average household spends less than $500 for motor vehicle insurance yearly. c. Most people who are involved in an autom
> List the five factors that determine driver classification.
> What are the two ways by which you can reduce your vehicle insurance costs?
> In the space provided, write “T” if statement is true, “F” if it is false. a. Financial responsibility law requires drivers to prove that they can pay for damage or injury caused by an automobile accident. b. Insurance that covers physical injuries cau
> List the three main types of bodily injury coverage.
> 1. Describe the stage in the adult life cycle (Exhibit 1-1) that Jamie Lee and Ross are experiencing right now. What are some of the financial activities that they should be participating in at this stage? 2. After reviewing Jamie Lee and Ross’s current
> List at least three other kinds of automobile insurance that are available to you.
> What is no-fault insurance? What is its purpose?
> In the space provided, write “T” if you believe the statement is true, “F” if the statement is false. a. Today most insurance policies automatically increase coverage as construction costs rise. b. In the past, many homeowners’ policies insured the bui
> What are the two methods insurance companies use in settling claims?
> List the five factors that affect home insurance costs.
> Define the following terms: a. Homeowner’s Insurance b. Household inventory c. Personal property floater d. Renter’s insurance
> Identify the choice that best completes the statement or answers the question: a. The personal liability portion of a homeowner’s insurance policy protects the insured against financial loss when his or her (i) house floods, (ii) jewelry is stolen, (iii)
> Define the following terms: a. Umbrella policy b. Medical payments coverage c. Endorsement
> List at least four personal property items that are not covered by a homeowner’s insurance policy.
> What are the three types of risk? Give an example for each.
> Give an example of each kind of risk—personal, property, and liability.
> List the four steps in planning for your insurance program.
> What are the four methods of managing risks? Give an example for each.
> What should you consider when deciding whether to sell your home on your own or use the services of a real estate agent?
> What factors affect the selling price of a home?
> What actions are recommended when planning to sell your home?
> For the following situations, select the type of home financing action that would be most appropriate: a. FIXED-RATE b. REFINANCE c. HOME EQUITY LOAN d. VA MORTGAGE e. REVERSE MORTGAGE
> What factors affect a person’s ability to qualify for a mortgage?
> What are the main sources of money for a down payment?
> Under what conditions might an adjustable-rate mortgage be appropriate?
> A Lesson From The Past 1. According to Mary Goldberg, the chance to invest in New World Explorations was “too good to pass up,” and she lost $10,000. Why do you think so many people are taken by get-rich-quick schemes? 2. Using the information obtained
> How do changing interest rates affect the amount of mortgage a person can afford?
> What are the advantages and disadvantages of owning a home?
> How can the quality of a school system benefit even homeowners in a community who do not have school-age children?
> What guidelines can be used to determine the amount to spend for a home purchase?
> Which components of a lease are likely to be most negotiable?
> What are the main benefits and drawbacks of renting a place of residence?
> For the following situations, would you recommend that the person rent or buy their housing? (Circle your answer) A person who desires to reduce income taxes paid A person who expects to be transferred for work soon A person with few assets for housing
> For the following situations, identify the legal action that would be most appropriate to take. (a) LEGAL AID SOCIETY (b) SMALL CLAIMS COURT (c) ARBITRATION (d) CLASS ACTION SUIT
> In what types of situations would small claims court and class-action suits be helpful?
> Describe situations in which you might use the services of a lawyer.
> 1. What type of policy would you suggest for Jeff and Ann? Why? 2. In your opinion do Jeff and Ann need additional insurance? Why or why not?
> What are common causes of consumer problems and complaints?
> How does arbitration differ from mediation?
> How can most consumer complaints be resolved?
> What actions are appropriate when buying a used car?
> What are the major sources of consumer information?
> The following abbreviations appeared in an ad for selling used cars. Interpret these abbreviations. 1. AC 2. ABS 3. pwr mrrs 4. P/S
> What maintenance activities could increase the life of your vehicle?
> When might leasing a motor vehicle be appropriate?
> Match the following descriptions with the warranties listed here. Write your answer in the space provided. (a) express warranty: (b) service contact: (c) limited warranty: (d) implied warranty: (e) full warranty:
> What types of brands are commonly available to consumers?
> 1. Do you think Kathy’s father was planning wisely for the welfare of his family? Can you suggest ways in which this family could have cut monthly expenses and thus set aside some money for more insurance? 2. Although Mr. Jones’s salary was not big eno
> How does a service contract differ from a warranty?
> In what situations can comparing prices help in purchasing decisions?
> In what circumstances would a $1,000 corporate bond be worth more than $1,000? In what circumstances would the corporate bond be worth less than $1,000?
> Is it legal or ethical for an insurance agent to suggest a variable life insurance policy to an 80-year-old man? Explain your answer.
> Review the settlement options on your family’s life insurance policies, and discuss with your family which option would be the best choice for them at this time.
> Assume you are 30-years old, single, and just beginning to invest. How can you balance, safety, risk, and growth when choosing investments. Which component do you consider the most important?
> Visit a few websites of companies such as Metropolitan Life, New York Life, Transamerica Life, Lincoln Benefit Life, or others of your choice. Then summarize the various types of insurance coverage available from these companies.
> Analyze the four methods of determining life insurance requirements. Which method is best and why?
> After performing a financial checkup, you realize that you have too much credit card debt. What steps can you take to reduce the amount of money you owe on your credit cards?
> Assume that you are choosing an investment for your retired parents. Would you choose a bond issued by the federal government, a state or local government, or a corporation? Justify your answer.
> We Rent, So Why Do We Need Insurance? 1. Why is it important for people who rent to have insurance? 2. Does the building owner’s property insurance ever cover the tenant’s personal property? 3. What is the difference between cash value and replacement va
> Explain the following statement: The potential return on any investment should be directly related to the risk the investor assumes.
> Is it ethical to spend more than you make month after month? What repercussions could you encounter if you overspend on a regular basis?
> You are considering two different corporate bonds. One is rated AAA by Standard & Poor’s and pays 4.5 percent annual interest. The other bond is rated B by Standard & Poor’s and pays 6.2 percent annual interest. What do these ratings mean? Which bond
> Larry and Liz are a young couple both working full time and earning about $70,000 a year. They recently purchased a house and took out a large mortgage. Since both of them work, they own two cars and are still making payments on them. Liz has major me
> Should employers be required to provide employees some type of health insurance coverage even if it is a group plan, with each employee paying his or her full premium?
> Prepare a list of actions to take when selling a home.
> Describe how knowledge of current interest rates would help you better plan when obtaining a mortgage.
