. Bill & Mary are a young married couple with no children who will graduate at t
ID: 2740790 • Letter: #
Question
.Bill & Mary are a young married couple with no children who will graduate at the end of the semester. Each have a job paying $30,000 for combined annual salary of $60,000. They rent an apartment; combined they owe $20,000 in student loans @ 5% for 10 years; combined they have 4 credit cards with $8,000 debt with interest rate of 14%. Each of them has a 401k plan. They must purchase insurance through work. They have no car payments but are looking for a new car. They want to start a family.
Purchase of a home (10 pts). They like a $180,000 rancher on the golf course. Interest rates are 6.0% for a 30 year fixed rate mortgage. Discuss the ins and outs of purchasing a home... can they afford it, etc. Calculate their PITI if insurance is .005 of home value; they pay down 10%; and taxes are $150 per month. Their mortgage payment cannot exceed 28% of income. Show your work.
Per Month Per Year
PI
T
I
PITI as a percent of income:
2. Purchase of a car (10 pts). A new XXX model is $28,000. Financing is available at 9% for a 4-year loan. Be sure to calculate their car payment for PI.
PI Per Month
PI Per Year
Auto PI as a percent of income: ________________________
Total Debt as a percent of income __________________
3. Life Insurance (10 pts). Help lay out a needs based approach that would work well for them. How much should they get assuming they have none right now?
Major Needs (List)….explain
Explanation / Answer
1) Calculation of Principal amount, Interest, Taxes and Insurance for House : Per Month Per Year Principal & Interest $ 981 $ 11,769 Taxes $ 150 $ 1,800 Insurance $ 75 $ 900 Total PITI Payment $ 1,206 $ 14,469 PITI as a percent of income 25.70 Input data : Years 30 Interest rate 6% Loan Amount $ 1,62,000 Annual Tax $ 1,800 Annual Insurance 0.005 House cost $ 1,80,000 Repayment installment : Principal amount / Annuity Dis.factor @ 6%,30 years 162000 / 13.75 = $ 11769 2) Calculation of Principal amount, Interest, Taxes and Insurance for Car : Per Month Per Year Principal & Interest $ 720 $ 8,642 Total PI Payment $ 720 $ 8,642 PI as a percent of income 15.35 Total Debt as % of income 41.06 Input data : Years 4 Interest rate 9% Loan Amount $ 28,000 Repayment installment : Principal amount / Annuity Dis.factor @ 9%,4 years $ 28000 / 3.240 = $ 8642 Working Notes : Calculation of Income details. Salary (combined annual) 60000 Less: Credit card Interest 1120 Less: Student Loan Instalment 2590 Net cash available 56290
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