CASE $1$

The Johnsons Decide How to Manage Their Risks

Several years have passed since the Johnsons were married, and their financial affairs have become more complicated. They recently purchased a $$200,000$ condominium that has added only about $$400$ per month to their housing expenses. And they have purchased a second used car for $$12,000.$ As a result of these changes, Harry and Belinda realize that they now face greater risks in their financial affairs. They have decided to review their situation with an eye toward managing their risks more effectively. Use

the steps in the risk$-$management process $($pp$.300-302),$ their net worth and income and expense statements in Table $3-6$ on page $97$ and Table $3-7$ on page $98,$ and other information in this chapter to answer the following questions:

$($a$)$ What are Harry and Belinda's major sources of risk from home and automobile ownership, and what is the potential magnitude of loss from each?

$($b$)$ Given the choices listed in Step $3$ of the riskmanagement process, how should the Johnsons handle the sources of risk listed in part a$?$