1. James (aged 33) and his wife, Jennie (aged 30), have just purchased a newcondominium for $550,000. They plan to take a 80% mortgage loan of $440,000 forthe next 35 years.Raj has the following assets:BMW car$65,000stocks on (stock exchange of America)$180,000group insurance by his employers$400,000personal insurance$250,000James has a hire purchase loan on the BMW car amounting to $40,000. Should hepre-decease Jennie, James Plans to provide $36,000 per annum for Jennie till shereaches age 70. James would also like to create an Emergency Buffer fund of $50,000and Final Expenses fund of RM35,000. Using the CAPITAL LIQUIDATION method,compute the amount of additional life insurance that James needs to purchase.Assume a discount rate of 4% per annum and that income is received at the end of theperiod.2. In the example above; as life mortality is uncertain, James would like to provide forhis wife, Jennie, an income of $36,000 for an indefinite time period. Using theCAPITAL PRESERVATION method, compute the amount of additional lifeinsurance that James needs to purchase. Assume a discount rate of 4% per annum andthat income is received at the end of the period.

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Answered: 1. James (aged 33) and his wife, Jennie…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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1. James (aged 33) and his wife, Jennie (aged 30), have just purchased a new condominium for $550,000. They plan to take a 80% mortgage loan of $440,000 for the next 35 years.