1) Jen caused a 3 car accident near her home in Akron, Ohio. She has the Ohio mi
ID: 2753501 • Letter: 1
Question
1) Jen caused a 3 car accident near her home in Akron, Ohio. She has the Ohio minimum liability coverage with no collision or comprehensive coverage. Jason, the driver of one of the other cars, suffered injuries leading to $42,000 in medical bills. No other injuries were suffered. The damage toJen's car was $2000 and she caused $22,000 in damage to the other two cars. How much of the amount of bodily injury and property danage will be covered by the insurance policy? How much of the amount of bodily injury and property damage will be paid for by Jen?
2) Dr.Houselover has an annual income of $129,000. She has monthly payments for auto loan ($300), student loan ($250) and credit card payments ($400). Using a 36 percent back-end ration, what are the monthly mortgage payments (including taxes and insureance) she can afford?
3) Layla has owned her home for 12 years and expects to live in it for 5 more years. She originally borrowed $200,000 at 5% for 30 years to buy the home. She still owns $130,000 on the loan, interest rates have fallen to 4%, and Layla is reconsidering refinancing the loan for 15 years. She would have to pay 3 points on the new loan with no prepayment on the current loan. What is Layla's monthly payment? Calculate the monthly payment on the new loan.
4) Rebecca calculated that she needed $1,400,000 at retirement (beyond pensions and Social Security). Rebecca is 34 years old, investing aggressively and expecting to earn 7% in her retirement account. She plans to retire at age 62. How much does she need to save annually to reach her goal?
5) Once in retirement, Rebecca would like annual retirement income of $70,000. She would like the savings to last for 25 years during retirement. Assuming that she could earn a 4% after-tax and after-inflation rate of return on their investments, did she save enough?
6) My husband and I estimate that we will need $50,000 in 18 years for the education of our newborn daughter. Assuming that we can obtain a return of 4 percent, how much should we invest annually?
7) Anna and Mike are considering their life insurance options. They both make about $50,000 per year. In the event that something happens to one of them, they figure they will need to cover the other person's salary at 80% for 10 years. Disregard Social Securuity. They are doing a needs-based approach and want to include $5,000 final costs for funeral arrangements and $10,000 for readjustment period needs. Based on the needs-based approach, what face value of insurance is needed?
Please help explain these problems to me as soon as possible for my upcoming test! Will give a thumbs up and whatever else needed. Thank you!
Explanation / Answer
1) Jen caused a 3 car accident near her home in Akron, Ohio. She has the Ohio minimum liability coverage with no collision or comprehensive coverage. Jason, the driver of one of the other cars, suffered injuries leading to $42,000 in medical bills. No other injuries were suffered. The damage to Jen's car was $2000 and she caused $22,000 in damage to the other two cars. How much of the amount of bodily injury and property damage will be covered by the insurance policy? How much of the amount of bodily injury and property damage will be paid for by Jen?
Answer:
How much of the amount of the bodily injury and property damage will be covered by the insurance company?
Answer:
$25000 each for the bodily injury and property damage will be covered by the insurance company.
How much of the amount of the bodily injury and property damage will be paid for by Jen?
Answer: As the bodily injury is covered only by $25,000 per person the rest of the amount which is $42,000 - $25,000 = $17,000 is to be paid by Jen.
2) Dr.Houselover has an annual income of $129,000. She has monthly payments for auto loan ($300), student loan ($250) and credit card payments ($400). Using a 36 percent back-end ration, what are the monthly mortgage payments (including taxes and insureance) she can afford?
Answer: Total payment for loans = $300 + $250 + $400 = $950 per month
Or annually total payments = $11,400
So debt to mortgage ratio = $11,400 / $129,000 = 8.83%
So she can afford 91.17% of debt payments
3) Layla has owned her home for 12 years and expects to live in it for 5 more years. She originally borrowed $200,000 at 5% for 30 years to buy the home. She still owns $130,000 on the loan, interest rates have fallen to 4%, and Layla is reconsidering refinancing the loan for 15 years. She would have to pay 3 points on the new loan with no prepayment on the current loan. What is Layla's monthly payment? Calculate the monthly payment on the new loan.
Answer:
Current amount outstanding = $130,000
Interest = 3%
Time = 15 years
Instalement (monthly) = $897.76 per month
4) Rebecca calculated that she needed $1,400,000 at retirement (beyond pensions and Social Security). Rebecca is 34 years old, investing aggressively and expecting to earn 7% in her retirement account. She plans to retire at age 62. How much does she need to save annually to reach her goal?
Answer:
Funds to get = $1,400,000
Interest rate = 7%
Number of years to invest = 62 -34 = 28 years
Therefore annual savings required(byPMT function on excel) = $115,348.7
5) Once in retirement, Rebecca would like annual retirement income of $70,000. She would like the savings to last for 25 years during retirement. Assuming that she could earn a 4% after-tax and after-inflation rate of return on their investments, did she save enough?
Answer:
Annual income required = $70,000
Time to get this income = 25 years
Interest rate = 4%
Present value of $70000 for 25 years = $1,093,545.6
6) My husband and I estimate that we will need $50,000 in 18 years for the education of our newborn daughter. Assuming that we can obtain a return of 4 percent, how much should we invest annually?
Answer:
Investment annually = $3,949.67
7) Anna and Mike are considering their life insurance options. They both make about $50,000 per year. In the event that something happens to one of them, they figure they will need to cover the other person's salary at 80% for 10 years. Disregard Social Securuity. They are doing a needs-based approach and want to include $5,000 final costs for funeral arrangements and $10,000 for readjustment period needs. Based on the needs-based approach, what face value of insurance is needed?
Answer:
Insurance needed = 80% x 10 x $50000 = $400,000
Add to it $5000 and $10000
Total $15000 then 80% of $15000 = $12000
Therefore total insurance required = $412,000
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