Question 1 (10 marks)

John is deciding between two different credit cards. John typically spends $6,000 monthly on credit; however, he always pays the balance in full on time. He travels extensively for work but does not take advantage of air miles. When he does travel he always rents a car. The daily rental rate is $20 plus insurance coverage of $8 per day and he uses the car for 13 days throughout the year. He considers cash back as a bonus that he can use for entertainment. Assume he is able to earn 2% in his savings account. The two cards he is considering have the following features:

Features	Card 1	Card 2
Annual Fee	75	100
Cash back rebate	1%	1.50%
Credit Limit	7500	6500
Grace Period	25	28
Insurance Coverage	Yes	No
Interest Rate	21.50%	19.99%
Compounding Frequency	Monthly	Daily

What is the EAR on each card?

Which card should he choose and why?

Question 2 (15 marks)

Colleen is 33, single and deep in debt after a course of study that did not result in a job.

Luckily, she?s resilient ? an important trait for a self-employed professional ? so she was able to pick up where she left off, working in health care. She grosses about $75,000 a year, a number she hopes to boost by doing more private consulting.

She?d like to buy a house in the Ontario town where she lives, which would cost about $230,000, but that looks to be a long way off. Marriage and children may lie in her future as well, but for now, she is keeping her nose to the grindstone and focused on repaying her debt as soon as possible.

Colleen is making the minimum payments of $18,420 a year.

Monthly net income: $5,730

Monthly expenditures: Rent $965; utilities $225; car lease $275; car insurance $115; fuel, maintenance $200; grocery store $200; clothes $40; LOC $935; OSAP $600; gifts, charity $270; personal discretionary $160; drugstore $115; telecom, TV, Internet $200; professional association $85

Assets: Tax-free savings account $1,450 Liabilities: Student lines of credit $130,000; OSAP loan $43,905

Student Line of Credit: 7% (APR), compounded weekly and payable monthly.

OSAP: 5% (APR), compounded and payable monthly.

At the current rate how long will it take her to pay off her debts?

If she chooses to devote her monthly cash flow surplus to debt repayment as well how should she do it? How much sooner will she be able to pay off her debt?

Question 3 (40 marks)

Randi (35) and Nolan (35) have one child Jeff, age 3.

Nolan works at a local hospital and Randi works part time as a dance instructor.

Breakdown of Nolan?s Paystub:

Gross Salary: $72,000

Taxes: $14,834

CPP: $2,544

EI: $955

Employer Paid Benefits:

Dental $700

Drug Plan: $150

Vision & Hearing: $125

Basic Life: $400 (3x salary)

Randi earns $25,000 (gross) per year and does not pay in to CPP or EI. Her tax bill is roughly $2,786

They have provided you with the following information:

Net Worth - as of February 28, 2017
Assets	Liabilities
Chequing Account	2,000	Mortgage	469,191
Savings Account	4,338
TFSA - Nolan	33,400
RRSP - Randi	2,400
RRSP -Nolan	88,000
Car - Nolan	2,000
Home	500,000
Total Assets	632,138	Total Liabilities	469,191
Net Worth	162,947

Monthly Cash Flow Statement (Year ending February 28, 2017)
Income:
Nolan's Net Income	4,472
Randi's Net Income	1,851
Total Income	6,323
Expenses:
Mortgage	(1,977)
Property Tax	(340)
Hydro	(200)
Home Insurance	(160)
Cell Phones	(180)
Car Insurance	(186)
Car Maintenance	(220)
Groceries	(410)
Eating Out	(200)
TV & Int	(150)
Health and Hygiene	(50)
Clothing	(250)
Child related expenses	(250)
Donations	(200)
Vacations	(450)
Misc. Expenses	(100)
Savings	(1,000)
Total Expenses	-6,323

If Randi were to pass away, Nolan would require full day care for Jeff until he is school age (5) and then would require part time care. Full time daycare is $1,600 month. Part time is $800. If Nolan were to pass away Jeff would need part time care until school age. They anticipate that Jeff will go to university one day, and would like to support him in that case. They anticipate that if they continue their monthly savings of $1,000 until age 65 they will have enough in retirement to cover their needs from then on.

Randi and Nolan plan to retire once their mortgage is paid off, in just under 30 years.

• Calculate the life insurance needs for Randi & Nolan using both the income and expense approaches. Use a discount rate of 3.5% for the calculations, and where needed use the average CPP benefits as of October 2016. (30 marks)

https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html

• Go online and obtain a quote for the premium for life insurance for either Randi or Nolan based on the amount you calculated in part A using the Income approach (only need to do for one or the other). Quote your source. (3 marks)
• Based on the information given, what other risks do Randi & Nolan face? What types of other insurance might they need to consider, and why? (7 marks)

Adms3541 Winter term 2017 Assignment 2 Due in the beginning of class on Thursday, Mar. 23, 2017 (Section R) and Tuesday, Mar. 28, 2017 (Section M) and Wednesday, March 29, 2017 (Section N) Question 1 (10 marks) John is deciding between two different credit cards. John typically spends $6,000 monthly on credit; however, he always pays the balance in full on time. He travels extensively for work but does not take advantage of air miles. When he does travel he always rents a car. The daily rental rate is $20 plus insurance coverage of $8 per day and he uses the car for 13 days throughout the year. He considers cash back as a bonus that he can use for entertainment. Assume he is able to earn 2% in his savings account. The two cards he is considering have the following features: Features Annual Fee Cash back rebate Credit Limit Grace Period Insurance Coverage Interest Rate Compounding Frequency Card 1 75 1% 7500 25 Yes 21.50% Card 2 100 1.50% 6500 28 No 19.99% Monthly Daily a) What is the EAR on each card? b) Which card should he choose and why? Question 2 (15 marks) Colleen is 33, single and deep in debt after a course of study that did not result in a job. Luckily, she's resilient - an important trait for a self-employed professional - so she was able to pick up where she left off, working in health care. She grosses about $75,000 a year, a number she hopes to boost by doing more private consulting. She'd like to buy a house in the Ontario town where she lives, which would cost about $230,000, but that looks to be a long way off. Marriage and children may lie in her future as well, but for now, she is keeping her nose to the grindstone and focused on repaying her debt as soon as possible. Colleen is making the minimum payments of $18,420 a year. Monthly net income: $5,730 Monthly expenditures: Rent $965; utilities $225; car lease $275; car insurance $115; fuel, maintenance $200; grocery store $200; clothes $40; LOC $935; OSAP $600; gifts, charity $270; personal discretionary $160; drugstore $115; telecom, TV, Internet $200; professional association $85 Assets: Tax-free savings account $1,450 Liabilities: Student lines of credit $130,000; OSAP loan $43,905 Student Line of Credit: 7% (APR), compounded weekly and payable monthly. OSAP: 5% (APR), compounded and payable monthly. A) At the current rate how long will it take her to pay off her debts? B) If she chooses to devote her monthly cash flow surplus to debt repayment as well how should she do it? How much sooner will she be able to pay off her debt? Question 3 (40 marks) Randi (35) and Nolan (35) have one child Jeff, age 3. Nolan works at a local hospital and Randi works part time as a dance instructor. Breakdown of Nolan's Paystub: Gross Salary: $72,000 Taxes: $14,834 CPP: $2,544 EI: $955 Employer Paid Benefits: Dental $700 Drug Plan: $150 Vision & Hearing: $125 Basic Life: $400 (3x salary) Randi earns $25,000 (gross) per year and does not pay in to CPP or EI. Her tax bill is roughly $2,786 They have provided you with the following information: Net Worth - as of February 28, 2017 Assets Chequing Account Savings Account TFSA - Nolan RRSP - Randi RRSP -Nolan Car - Nolan Home Liabilities 2,000 Mortgage 4,338 33,400 2,400 88,000 2,000 500,000 Total Assets Net Worth 632,138 Total Liabilities 162,947 469,191 Monthly Cash Flow Statement (Year ending February 28, 2017) Income: Nolan's Net Income 4,472 469,191 Randi's Net Income 1,851 Total Income 6,323 Expenses: Mortgage (1,977) Property Tax (340) Hydro (200) Home Insurance (160) Cell Phones (180) Car Insurance (186) Car Maintenance (220) Groceries (410) Eating Out (200) TV & Int (150) Health and Hygiene (50) Clothing (250) Child related expenses (250) Donations (200) Vacations (450) Misc. Expenses (100) Savings (1,000) Total Expenses -6,323 If Randi were to pass away, Nolan would require full day care for Jeff until he is school age (5) and then would require part time care. Full time daycare is $1,600 month. Part time is $800. If Nolan were to pass away Jeff would need part time care until school age. They anticipate that Jeff will go to university one day, and would like to support him in that case. They anticipate that if they continue their monthly savings of $1,000 until age 65 they will have enough in retirement to cover their needs from then on. Randi and Nolan plan to retire once their mortgage is paid off, in just under 30 years. A. Calculate the life insurance needs for Randi & Nolan using both the income and expense approaches. Use a discount rate of 3.5% for the calculations, and where needed use the average CPP benefits as of October 2016. (30 marks) https://www.canada.ca/en/services/benefits/publicpensions/cpp/cpp-benefit/amount.html B. Go online and obtain a quote for the premium for life insurance for either Randi or Nolan based on the amount you calculated in part A using the Income approach (only need to do for one or the other). Quote your source. (3 marks) C. Based on the information given, what other risks do Randi & Nolan face? What types of other insurance might they need to consider, and why? (7 marks) Question 4 (10 marks) Problem 2, page 334, Chapter 13, Ho and Robinson (textbook). \"A bank quotes a rate of 7.75% for a three-year .....\" Question 5 (25 marks) Problem 10, page 337, Chapter 13, Ho and Robinson (textbook). \"Gilles and Lisette are planning to buy a new house in Outremont.....\