MR FROHNHOEFER'S MASTER PLAN (35 points total)
Mr. F. would love nothing more than to retire early ... like yesterday. His perfect life would involve selling his
home on Long Island and moving full-time to his vacation home in Pennsylvania, where he can work on his golf
game on a daily basis in the warm months, while playing ice hockey on a lake each day in the winter.
These are Mr. and Mrs. F's current debts. Their combined salary is roughly $239,000/year.
DEBTS ASSOCIATED WITH HOME IN LONG ISLAND
Mortgage: Monthly payment based on $420,000 BORROWED ($420,000 is the actual amount of the refinanced
loan; do NOT take a down payment off this number) at 3.4375% APR for 30 years
Property tax: $11,484/year
Homeowners' insurance: $599.70/semiannually
Electricity: $146/month
Natural gas (heat): $128/month
Water: $96.64/quarter
Cable, WiFi and streaming services: $265/month total
DEBTS ASSOCIATED WITH HOUSE IN PENNSYLVANIA
Oil heat: $1550/year
WiFi: $64.99/month
Electricity: $45/month
Property tax: $2712.85/year
Sewer/water: $386.66/quarter
Property owners' association dues (this is another form of property tax): $1625/year
Homeowners' insurance: $490/semiannually
DEBTS NOT ASSOCIATED WITH EITHER HOUSE
Cell phones for family: $255/month
Car insurance: $1131.53/semiannually
Daughter's school tuition: $15,120/year
Son's school tuition: $7,280/year
1. Calculate Mr. & Mrs. F's current D/I ratio, correct to the nearest tenth of a percent. Show all work. Are they in
financial trouble?
2. Determine whether Mr. F. can pull off his master plan. It would work like this:
Mr. F. quits his job (his salary is roughly $114,000), Mrs. F. transfers to the Wilkes-Barre, PA Veterans
Hospital (her salary remains the same), and they and kids move full-time to PA. This eliminates all debts
associated with the Long Island home. Under this scenario, the following adjustments would be needed to their
other debts:

- Oil heat cost would double, to account for being in PA for the long, harsh winter.
- Electricity would rise to $145/month
- Adding cable TV and keeping Netflix and other streaming services would be a $115/month debt

on top of the WiFi

- Car insurance would become $1,500/semiannually since Mr. F's daughter is old enough to get

her license in Pennsylvania.

- School tuition would become $32,200 total for next year, since both children will be in high

school.
Calculate a new D/I ratio (correct to the nearest tenth of a percent) for the couple.
Using your answers, advise Mr. F. on his options.

Answer rating: 100% (QA)

Answer 1 Calculation of Mr Mrs Fs current DI ratio Total Monthly Debt Payments Long Island House Mortgage 420000 borrowed at 34375 APR for 30 years 18... View the full answer