Read the following case, along with the appendixes, and then answer the Questions.

It$$s Thursday morning, you are enjoying your morning cup of coffee, and reading

financial news. Suddenly the phone rings, you pick it up and you realize that it is Lauren.

Lauren needs your help in analyzing her insurance and investment needs; you are more

than willing to help her. After the telephone conversation, you start working on her

request. Here are your notes:

$$ Lauren is married to Bob

$$ Their ages are $28$ and $29$ respectively.

$$ Residents of Ontario.

$$ Bob is a carpenter.

$$ Lauren is a nurse.

$$ Combined annual income of $$140,000$ after taxes.

$$ Her husband Bob is a risk seeker.

$$ Lauren has a mid$-$risk tolerance.

$$ They have life insurance through their employer equivalent to their annual salary.

Lauren has a $$100,000$ renewable convertible term policy. Bob has a $$150,000$

renewable convertible term policy.

$$ Their workplace provides supplemental health care insurance; this insurance also

covers their kids.

$$ Their workplace also provides disability insurance. Disability insurance has an

elimination period of one month, and a benefit period of two years. Disability

insurance payments are equivalent to $60\%$ of the gross pre$-$tax salary.

$$ Combined annual expenses of $$80,000.$

$$ They have two kids Andrew and Mary, ages five, and eight.

$$ They will finance their children$$s education.

$$ They have $$300,000$ in their RRSP account $($entirely invested in U$.$S$.$ small cap$).$

$$ The TFSA account has a balance of $$170,000.$ Bob uses the TFSA account to

speculate in the stock market $($entirely invested in U$.$S$.$ blue chips and U$.$S$.$ small

cap$).$

$$ They have auto loans for $$40,000.$

$$ They own two cars: a Honda Civic $2017$ and a Ford F$-1502016$ truck

$$ They have auto insurance, and renter$$s insurance.

$$ Their current objective is to collect the down payment $(20\%)$ for their future

house $($house estimated price: $$1,000,000).$ Bob is promising Lauren, that he will

liquidate the stock investments once the market goes up$,$ and they will buy the

house. Currently, Bob is sitting on a $$20,000$ loss in the TFSA account.

$$ The clients have $$20,000$ unused TFSA limit$.$

$$ RRSPs are preserved towards retirement. Therefore, if one of them dies$/$ becomes

disabled, they will not use the RRSP funds to finance their current lifestyle.

BFIN$341$ Final Assignment

pg$.2$

You obtained the following insurance quotes from your system:

Insurance type$/$ benefit

amount Bob$$s premium per year Lauren$$s premium per year

Term $65($price per $$100$k$)$ $$60\mathrm{.}00$ $$50\mathrm{.}00$

Whole Life $($price per $$100$k$)$ $$400\mathrm{.}00$ $$332\mathrm{.}00$

Disability $($$$5,000$ monthly

benefit, elimination period $6$

month, benefit period till age $65)$

$$3,000\mathrm{.}00$ $$3,100\mathrm{.}00$

Critical Illness $($price per $$50$k$)$ $$300\mathrm{.}00$ $$321\mathrm{.}00$

Long Term Care $($up to $$3$k

payments per month$)$ $$500\mathrm{.}00$ $$421\mathrm{.}00$

Lauren is expected to receive a $$20,000$ bonus $($net of taxes$),$ at the end of this month.

She is willing to invest this amount towards her retirement. She short$-$listed the

investments below.

$$Short$-$Listed Investments$$ expected returns for the coming year.

Investment

Fund

Unit

price

Expected cash flows

$($i$.$e$.$ Interest$/$

Dividends$)$

Expected capital

gains if market goes

up

Expected capital

losses if the market

goes down

Private Equity $$50\mathrm{.}00\%45\%35\%$

U$.$S$.$ Small Cap $$1\mathrm{.}30\mathrm{.}5\%39\%30\%$

Listed Equity

REITs

$$5\mathrm{.}57\%17\%15\%$

Junk Bonds $$1009\%5\%6\%$

Note: Expected Cash Flows $($Interest$/$ Dividends$)$ will stay the same whether the market goes up$/$down$.$

Your objective is:

$1.$ Carry out a life insurance needs analysis, for each one of them $($show your

calculations$)$

$[30$ Marks$]$

$2.$ Refer to the case and the insurance plan quotes. Would you recommend

purchasing any additional insurance plans? Why?

$[20$ Marks$]$