4 CHAPTER 4-QUESTIONS Recensing the importance of planning for their future, Sean and Karen sat down to determine their net worth. They compiled list of these and liabilities each one of them is bringing into the marriage Sean Karen Assets Chequingsavings accounts $3200 3800 Investments 17 000 Automobile) 3000 Cash value of life insurance 3100 n/a RRSP) 4000 Other 600 Liabilities Student loans $7500 $11 000 Car loans n/a wa Other debts 1350 5000 Line of credit n/a iva Credit cards 290 475 Then they identified their monthly income and debts as follows: Sean Karen Total $5250 $3937 $5100 $4080 $10 350 $8017 $780 Monthly Income Gross monthly income Net Income Monthly Expenses Housing (rent, utilities, cable, phone) Transportation (lease, gas, repairs, insurance, parking) Medical and dental Living expenses (groceries, clothes, entertainment, miscellaneous) Credit payments $1700 1140 100 425 435 200 460 $2480 1575 300 885 200 780 980 a. Net worth is calculated as the difference between a person's assets and liabilities. Calculate Sean and Karen's total assets, total liabilities, and individual net worth b. Calculate Sean and Karen's total monthly expenses, and determine how much money cach one has left over at the end of each month. COMPREHENSIVE CASE 185 Sean and Karansions to pay off their student loans that they can als their dream of buying a home and starting a family by the time they both too 30 Currently, Sean is repaying 3150 per month on his student loan and Karen icon tributing 5.150. At the rates, it will take Seat five more years to pay off his student debt and it will take Kare the win Using the following formula, calculate the monthly loan payment that will enable Sean to pay off his student debt in only two years (Asume a fixed interest rate of 3.5%) PART 1 COMPREHENSIVE CASE STAP d. Although the purchase is still a few years off, Sean and Karen want to estimate now what they'll be able to afford when they go house hunting. One rule of thumb is that couples can afford to spend between 25 and 3 times their stress household income. Lenders also ask two key questions to determine whether or not you live the financial ability to carry the costs of a mortgage and of running the home. The two most widely accepted guidelines used are the gross debt service tato (GDS) and the total debt service ratio (TDS). The GDS should not exceed 32% (0) According to the rule of thumb, how much can Sean and Karen afford for their first home (11) Assuming a mortgage payment of $2300 per month, property taxes of 8.3000 per year, and heating of about $180 per month on equal billing, calculate Sean and Karen's GDS using this formula: GDS (Monthly mortgage payment + Monthly property taxes + Monthly heating) X 100% (Gross monthly income) (111) The TDS also needs to be under 40% for lenders to approve a mortgage, Calculate Sean and Karen's TDS if they expect to have paid off their student loans and the loan to Karen's parents, taken on a new car loan of $425 per month, and find themselves paying an average of $9000 per year on their credit payments. TDS = (Monthly mortgage payment + Monthly property taxes + All other monthly debts) X 100% (Gross monthly income) (iv) If you were a bank manager, would you approve the mortgage for Sean and Karen's home purchase