Peter has group life insurance coverage from his employer that would pay a death benefit of $150,000. He also has disability coverage that would pay 60% of his gross income if he should get injured or disabled. He does have his own term life insurance policy that he has purchased from Canada Life that would pay a death benefit of $150,000. Like his wife, he is in the office from about 8:00 a.m. to about 5:00 p.m. and he gets three weeks of paid annual vacation. His job is also considered to be safe and his annual raises for the last 3 years have averaged just over 6 % each year. Their 40-year-old home is in very good shape, and is located on a street close to the Safeway store in Sunnyside (in fact, just around the corner from the Sunnyside LRT station). Because they live so close to the downtown core, where they work, they are both in the habit of walking to work, unless the weather is bad, in which case they are a ten-minute LRT-ride to their offices. Their home was purchased seven years ago for $400,000 and is currently worth $850,000. The couple likes their home and plans to live there at least until their children have grown up, but they have recently considered keeping this as their primary (main) home for when they retire. Lois and Peter have a mortgage on their home in the amount of $240,000 which has a five-year fixed term with an interest rate of 5.5%, a 20 year amortization, and costs them $1,650 per month in payments. Property taxes are $ 5,700 a year, and last year they spent $ 7,050 on utilities and house maintenance expenses. The couple recently had their home insurance adjusted to raise the amount of replacement-cost coverage of their home contents (furniture, appliances, clothing, etc.) from $100,000 to $125,000. They know, of course, that if they did a personal balance sheet, the current value figure they would use for the contents would be far below what the insurance company would compensate them for in the event of a catastrophe, such as their house burning down. Being conservative, they think that they would estimate the garage sale value of the contents of their home at about $ 50,000 if they did a personal financial statement. The couple has not done a good job of keeping records of what they spend their money on, so they have had to estimate what those expenses were. They estimate that, for the full year 2019, they spent the following amounts of money: Groceries 9,900 Car insurance 2,600 Home insurance 1,100 Life insurance for Peter 700 Day care for the boys 19,200 Car loan payments 7,200 Purchases and payments made on their credit cards 28,000 Vacations and trips 12,000 Eating out at restaurants and buying gifts 7,000 Monthly LRT passes for both of them; cost for one year 2,470 Their vehicles include a 1-year old Mini Cooper-S that cost $35,000 to buy new. It has a current market value of $26,000 and the loan that Lois took out will be paid off four years from now. They also have a four-year old Dodge Grand Caravan, bought new for $31,000 with a market value today of $11,000 and a loan that will be paid off one year from now. In preparing to discuss their financial situation, Lois and Peter went through their files and have rounded-up some other information they think they will need to have so that they can have a meaningful discussion of their money situation. So far, here is what they have come up with: Balance in their joint-savings account 4,000 Balance in their joint-chequing account 1,150 Balance owing on Peters MasterCard 7,100 Balance owing on Loiss VISA card 5,200 Peters self-directed RRSP at BMO Bank of Montreal 10,680 Loiss Mutual Fund RRSP at TD Canada Trust 7,720 Balance owing on the Mini Cooper loan 15,800 Balance owing on the Dodge Caravan loan 2,100 Before their children were born, Lois and Peter were each putting about $2,500 a year into their separate RRSPs. Both Lois and Peter have not put anything into their RRSPs since their children were born. They plan to start putting money into their RRSPs again, when the boys are in school full-time, which will be in two more years. Right now, Lois RRSP contains balanced mutual funds that hold mainly stocks and bonds, which she thinks are pretty safe. They seem to grow at a rate of about 3% a year, she thinks. Peters RRSP contains shares of ten small oil and gas exploration companies (all listed on the TSX Venture Exchange), most of which are recent start-ups (new companies) and have market values of between $1.50 and $2.25 a share. None of the companies that he owns shares in have paid any dividends, but Peter estimates the total value of the shares he owns has gone up about 10% in the last year. It is the intention of Lois and Peter to pay for their sons college or university education, if Brian and Stewie choose to go to those levels of post-secondary education. Lois and Peter plan to work until they are 65 years old, then they would like to retire. If she continues to work with the Calgary Board of Education until retirement, Loiss pension will be paying her about $51,000 a year (gross- before tax). She plans to start receiving her Canada Pension Plan (CPP) and her Old Age Security (OAS) payments from the federal government when she reaches age 65. She has no idea of what her RRSP will be worth by the time she retires but, when she set it up 5 years ago; she hoped that it would be worth at least $300,000 by age 65. If Peter stays with The City until he retires, his employer pension income is estimated to pay him about $38,000 a year (gross-before tax). Other retirement income will consist of whatever income he can generate from his RRSP and from his CPP and OAS payments, which he plans to begin receiving when he turns 65. Peter is starting to get concerned about how much money he will actually be able to build into his RRSP by the time he reaches age 65 but, like his wife, originally thought he could have about $300,000 in his RRSP by the time he hits age 65. When they do retire, Lois and Peter would like to spend at least 3 months each winter in either Arizona or Mexico. With this being part of their plan, they believe they will need to have a joint (combined) gross-annual income, at retirement, of at least $125,000 per year. Lois and Peter are not good at saving money, and even worse at knowing where the money goes. They use their credit cards to buy almost everything so they can build-up the Air Miles and other travel-points to take vacations on. Some months they pay large amounts of money against their credit card balances, other months they make only the minimum payments. Your Assignment 1) Using the concept that is contained in Exhibit 2 3 from the course textbook (a copy of which is attached at the back), create a joint personal balance sheet as at Dec. 31, 2019 and provide your conclusions about what you see in their balance sheet. (5 marks for the balance sheet, and 5 marks for your commentary) 2) Using the concept that is contained in Exhibit 2 4 from the course textbook (a copy of which is attached at the back) create a joint cash-flow statement as at Dec. 31, 2019 and provide your conclusions about what that cash-flow statement seems to indicate. (5 marks for the cash flow statement and 5 marks for the commentary) Before you continue to do any more questions, show me your balance sheet and your cash-flow statement. If your numbers are way off in questions # 1 and # 2 (mainly in Q #2) your recommendations and conclusions for the rest of the case will be WRONG, which will DRASTICALLY REDUCE your grade earned. 3) Evaluate their risk-management situation (their use of insurance products to protect various aspects of their lives). There are some risk-management needs that are being met, and do not require your focus. There are other risk-management needs that do require your attention, and recommendations. (6 marks) 4) Examine their investment portfolios (what each has in their RRSPs) and make some recommendations about the types of investments they have and the risks they need to be aware of, by continuing to invest in those types of investments. (6 marks) 5) Comment on Loiss and Peters current tax strategies and make any recommendations you think are appropriate. Some topics are not strategies, such as their employer taking funds from their pay cheques to apply against tax on their incomes. There are some strategies that do need your attention and recommendations. (6 marks) 6) From what you have concluded from the value of their investment portfolios (RRSPs) together with the other sources of income in their retirement what, in your opinion, is the likelihood that the couple can achieve the goals they have, with their respective RRSPs and other sources of retirement income, so that they can, together, have retirement income of $125,000 per year. (8 marks) 7) Discuss how they are using, and managing, their consumer credit and make recommendations. (5 marks) 8) Provide your comments and recommendations about the intention that the couple has to pay for their sons post-secondary education. (4 marks)