Linda and Jeff Carland are preparing to receive their first child. With her anticipated complications of the

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Question:

Linda and Jeff Carland are preparing to receive their first child. With her anticipated complications of the delivery, Linda is getting very serious on buying a life insurance that would compensate the financial loss for her family for the next 25 years, if she were to die. In her desirable life insurance, she wants to factor in $50,000 educational fund for her newborn baby. She also wants to pay off the remaining $70,000 of their home mortgage, and gives Jeff a six-month leave from work so he can better adjust to life after her death. Linda also figures out that a minimum of $6,000 would be needed for her burial. Given that her annual disposable income is $25,000, Jeff's annual income is $27,000, her social security check would be $802.00 a month for 15 years, and her current universal life insurance would cover $75,000.

17. (11 pts) Based on the total loss estimation by the "Needs Approach," calculate the amount of life insurance Linda needs to buy, given that the interest rate is 9.5%.

Social Security Check

Annuity A= 802

Rate r=9.5%/12= 0.79%

Term(months) T=15*12 180

Today's Value B0=(A/r) *(1-(1/(1+r)^T)

$ 76,803.39

B0= (802/(9.5%/12))*(1- (1/(1+9.5%/12)^180)

Linda's Salary Value

Annuity (Annual salary) A= 25,000

Rate r= 9.50%

Term(years) T = 25

Today's Value B0=(A/r) *(1-(1/(1+r) ^T) $ 2,35,939.44

B0= (25000/9.5%) *(1-(1/(1+9.5%)^25)

Jeff's 6-month leave.

Annuity (monthly salary) A=27000/12 2,250.00

Rate r=9.5%/12 0.79%

Term(months) T=6 6

Today's Value B0=(A/r) *(1-(1/(1+r)^T) $ 13,133.70

B0= (2250/ (9.5%/12))*(1-(1/(1+9.5%/12)^6)

Needs

Educational Funds= $ 50,000.00

Home Mortgage Payoff = $ 70,000.00

Burial = $6,000.00

Linda's Salary = $2,35,939.44

Jeff's leave Need =$13,133.70

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Total $ Needed $ 3,75,073.14

Universal Life Cover $ -75,000.00

Social Security Check $ -76,803.39

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Life Insurance Need $ 223,269.74

18. (11 pts) Rachel has been paying her monthly mortgage of $887 for the last 10 years. She obtained this mortgage at an annual interest of 4.5% for 30 years. How much would be left for her to pay (the balance of the mortgage)?

Remaining Balance = P * (1 + r) ^n - ((1 + r) ^n - 1) / r * M

Where:
P = Original loan amount
r = Monthly interest rate (annual interest rate / 12)
n = Total number of payments (loan term in years * 12)
M = Monthly mortgage payment

Monthly interest rate = 4.5% / 12 = 0.375%

Total number of payments made: 10 * 12 = 120