1.Steve and Charlene are married and have one child, Keri who is 10 years old.Steve and Charlene are both 45 years old.Steve expects to retire at age 65.Charlene's life expectancy is 40 more years (at age 85).Steve's current after tax income is $6,250 a month and if Steve were to die today, Charlene would need 75% of that to maintain her lifestyle. Charlene has a part time job as a graphics artist, makes $1200 per month, and expects to do that until she retires at age 65. She will begin taking Social Security at age 60.Steve expects his income to grow at 4% per year (i.e., 3% inflation and 1% real income growth).Also assume that a 2% after tax return in excess of inflation (3%) is reasonable.All capital is liquidated by end of Charlene's life.

If Steve were to die, they would have current cash needs as follows:

a.Final expenses: $25,000

b.Mortgage Payoff: $250,000

c.Other debts:

i.Notes payable & loans:$15,000

ii.Taxes Payable: $5,000

iii.Other credit card balances: $10,000

d.College Education:$120,000

e.Emergency Fund:$36,000 (six months at $6,000 per month)

The couple's current capital assets include:

a.Life Insurance at Steve's company: $250,000

b.Cash & Savings:$25,000

c.Steve's 40lK:$200,000

d.Pension Benefits immediately payable to Charlene if Steve is not alive: $100,000

e.Other assets (jewelry and other valuables that could be liquidated): $25,000

Equations for the problem:

Show your work here and insert answers in the table on page 4.

a)Determine Present Value of After Tax Earnings. __________________________

i)PV of Steve's After Tax Earnings: ___________________________________

ii)PV of Charlene's After Tax Earnings: _______________________________________

b)What is the Family support ratio?_______________________

c)Determine the Present Value of Family Support Obligations. ______________

d)Determine the Present Value of Social Security Benefits.Use the following table.

Age

Family

$30,000¹

$45,000¹

$60,000¹

$75,000¹

$90,000¹

$105,000¹

35

Spouse & one child³

1742

2280

2816

3104

3358

3608

Spouse & two children⁴

1964

2794

3288

3624

3918

4212

One child only

871

1140

1408

1552

1679

1804

Spouse at NRA⁵

1161

1520

1878

2070

2238

2406

Spouse at age 60⁶

830

1087

1343

1480

1600

1720

45

Spouse & one child³

1636

2122

2608

2984

3212

3438

Spouse & two children⁴

1774

2654

3088

3482

3748

4013

One child only

818

1061

1304

1492

1606

1719

Spouse at NRA⁵

1091

1415

1739

1989

2141

2293

Spouse at age 60⁶

780

1012

1244

1422

1531

1639

i)Present Value of Charlene and Kerry Benefits _________________________

ii)Present Value of Charlene's Retirement Benefits ___________________________

iii)Total Social Security Benefits (i) + (ii) _______________________________

e)Determine Value of Insurance, Mkt Securities and other Capital Assets

i)_________________________________________________

ii)_________________________________________________

iii)_________________________________________________

iv)_________________________________________________

v)_________________________________________________

vi)Total: ____________________________________________

f)Determine Special Projects and Other Current Cash Needs at Death

i)______________________________

ii)______________________________

iii)______________________________

iv)______________________________

v)______________________________

vi)______________________________

vii)______________________________

viii) _Total_________________________

Summarize your work here.

ANALYSIS STEPS (SUBMIIT AMOUNTS ON LINE IN PROBLEMS 37 - 45.NO SIGNIFICANT DIGITS, I.E., NO DISMAL PLACES.TYPE ACTUAL NUMBERS ON WEBCAMPUS)

Amount

37.Determine Present Value of Steve and Charlene's After Tax Earnings

38.Family Support Ratio

39.Present Value of Family Support Obligations (1) * (2)

40.Determine Present Value of Social Security Benefits

41.Determine Value of Insurance, Mkt Securities and other Capital Assets

42.Total Adjustments to Income (4) + (5)

43.Determine Net Family Support (3) - (6)

44.Determine Special Projects and Other Current Cash Needs at Death

45.Determine Insurance Required (7) + (8)

2)State your recommendations to Steve and Charlene.