Use the "family need" method to complete 1. Yearly income x 5 2. Total approximate expenses above and beyond your daily living costs for you and your dependents (e.g. tutition, care for disabled child or parent) 3. Emergency fund needed (6 months of living expenses) 4. Expected funeral expenses 5. Total estimate of family's financial needs (sum of lines 1- 4) 6. Total liquid assets (e.g. savings account, CDs, money market funds, other life insurance, pension plan death benefits, and Social Security benefits) 7. Life insurance needs (total estimate of needs minus liquid assets)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Jamie Lee and Ross were stunned to find that their family of two has grown to a family of five! They were expecting twins, but when the babies were born, they discovered 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?

 

Jamie Lee and Ross decided to purchase life insurance for Ross because his is the higher income at this time and because it would be more devastating if his income was lost due to his death. They have allowed $9,600 for funeral costs. 

 

I really need help in calculate their living expenses for 6 months to include all monthly expenses, excluding credit card debt and entertainment. Note that Ross's mother lives close and will be providing childcare to their triplets once Jamie Lee goes back to work at the bakery for half days. His mom will have a hired nanny to assist, which will cost them $1,400 a month. Use the table below to determine the amount Jamie Lee and Ross should use when shopping for life insurance. 

 

Current Financial Situation

 

Assets:   Income:  
Checking account $4,100 Gross income (Jamie Lee) $61,000
Savings account $17,600 Net income after taxes (Jamie Lee) $42,700
Emergency fund savings account $20,700 Gross income (Ross) $85,000
IRA balance $26,600 Net income after taxes (Ross) $70,500
Car (Jamie Lee) $13,100 Monthly Expenses:  
Car (Ross) $20,600 Mortgage $1,465
Liabilities:   Property taxes $560
Student loan balance $0 Homeowners insurance $360
Credit card balance $5,100 Utilities $240
Car loans $8,600 Food $580
    Gas/maintenance $355
    Credit card payment $355
    Car loan payment $305
    Entertainment $205

 

Use the "family need" method to complete
1. Yearly income x 5
2. Total approximate expenses above and beyond your daily
living costs for you and your dependents (e.g. tutition, care
for disabled child or parent)
3. Emergency fund needed (6 months of living expenses)
4. Expected funeral expenses
5. Total estimate of family's financial needs (sum of lines 1-
4)
6. Total liquid assets (e.g. savings account, CDs, money
market funds, other life insurance, pension plan death
benefits, and Social Security benefits)
7. Life insurance needs (total estimate of needs minus
liquid assets)
Transcribed Image Text:Use the "family need" method to complete 1. Yearly income x 5 2. Total approximate expenses above and beyond your daily living costs for you and your dependents (e.g. tutition, care for disabled child or parent) 3. Emergency fund needed (6 months of living expenses) 4. Expected funeral expenses 5. Total estimate of family's financial needs (sum of lines 1- 4) 6. Total liquid assets (e.g. savings account, CDs, money market funds, other life insurance, pension plan death benefits, and Social Security benefits) 7. Life insurance needs (total estimate of needs minus liquid assets)
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