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Use the information below to answer the questions. Instructions You have just graduated from ACME State with a degree in Diesel Technology. Your new job takes you to Toledo, Ohio. You are now earning $35,000 per year. Your take home pay is 70% of that gross total.

You are anxious to purchase a home. You have the following monthly expenses: Food $275, Utilities $145, Phone $75, Medical $30, Insurance $130 (including auto, health and life), Clothing $70, Student loan payment $145, VISA payment $65, MasterCard Payment $48, Car payment $211, Miscellaneous $100, Total $______.

Calculate your monthly take-home pay. Add up the budgeted monthly expenses. Determine how much remains for a monthly mortgage PITI payment (principal, interest, taxes, insurance). Then, assume taxes and insurance (T&I) amount to $70 per month, and calculate how much remains for mortgage principal and interest (P&I).

Using the remaining P&I amount, compute the size of the mortgage loan you could obtain at 7 percent annual interest over 30 years. Then, based on having a 10% down payment (assuming it is 10% of the purchase price), find the maximum home price you could afford.

Finally, estimate the total interest paid over the life of the mortgage if the monthly payment is $677.67 and the mortgage amount is $107,460.

Second scenario: You have a $150,000 mortgage, 30-year term at 6% interest, and are asked to compute the monthly payment and total interest paid. Then, estimate monthly payments for a 15-year loan at 6% and at 7.5%, and corresponding total interest.

Additional questions involve auto insurance coverage descriptions, calculating annual costs per $1,000 of coverage, insurance claims amounts for a totaled automobile and damaged home, health insurance penalty and expenses, and medical bill sharing based on insurance policy details.

Other questions include determining life insurance needs using the "Human Life Value" and "Desired Income" methods, factoring inflation, taxes, and investment returns for different age and income scenarios.

Paper For Above instruction

Financial planning is an essential component of personal and family security, encompassing various aspects like mortgage affordability, auto and health insurance, and life insurance needs. This paper explores these elements through a series of practical scenarios, illustrating how to apply fundamental financial calculations to real-life decisions. By understanding the interplay of income, expenses, interest rates, and insurance coverage, individuals can make informed choices that bolster their financial stability and future security.

Calculating Mortgage Affordability

The initial step in homeownership planning involves determining disposable income available for mortgage payments. After graduating and securing a job at an annual gross income of $35,000, the net or take-home pay is 70% of this amount, equating to $24,500 annually or approximately $2,041.67 monthly. Deducting total monthly expenses of $1,088 results in $953.67 remaining for mortgage PITI payments. Assuming taxes and insurance (T&I) costs are $70 per month, the amount available for mortgage P&I is $883.67.

Using mortgage formulas, the maximum loan amount based on these payments can be calculated. For a 30-year loan at 7% interest, the mortgage formula yields an approximate loan of $112,380.46. Since down payments typically constitute about 10% of the purchase price, the maximum home price affordable to this individual is approximately $125,420.51 (since $112,380.46 represents 90%).

Furthermore, estimating the total interest paid over 30 years involves calculating the difference between total payments and the initial loan. For a mortgage of $112,380.46 with a monthly payment of $677.67, total payments over 360 months amount to about $243,961.20, with an approximate total interest of $131,580.74. These calculations underscore the significance of interest rates and loan terms on total mortgage costs.

Scenario Analysis: Different Mortgage Terms and Rates

Examining a fixed $150,000 mortgage at a 6% interest rate over 30 years, the monthly payment is approximately $899.33, and total interest paid approaches $173,758.80. Changing the term to 15 years with the same interest rate increases monthly payments to about $1,265.79 and reduces total interest to approximately $87,060.92. At a higher interest rate of 7.5% over 15 years, payments would be approximately $1,382, with total interest rising to about $104,880.92, demonstrating how interest rates influence repayment costs and durations.

Auto and Home Insurance Considerations

Auto liability coverage, specified as 75/200/30, indicates liability limits of $75,000 per person for bodily injury, $200,000 per accident for bodily injury, and $30,000 for property damage, respectively. Calculating insurance costs per $1,000 of coverage reveals that collision coverage is more expensive per unit than liability coverage—$3 per $1,000 versus approximately $0.93 per $1,000.

In the event of total loss, the insurance payout typically equals the vehicle's current book value, which is $800 for a 1996 Chevrolet Impala. For home insurance, if the insured value is $85,000 and the replacement cost is $120,000, a $25,000 damage would be covered proportionally, paying up to the insured amount, in this case providing about $21,135 for repairs after damages exceed the insured limit.

Health Insurance and Medical Expenses

The penalty for not having health insurance varies but often includes flat fees or percentage-based fines, which in this context amount to approximately $588. The calculation of individuals' share of medical costs depends on deductible thresholds and co-insurance rates; for example, with a $1,500 deductible and a 70/30% cost-sharing, the person's obligation for a $17,500 bill would be roughly $6,300, considering the deductible and applicable co-insurance.

Similarly, for a subsequent unrelated hospital bill of $4,000 with all costs covered, the policy's provisions result in the individual paying nothing if the insured amount and coverage are comprehensive. However, if the expense occurs post-policy year, coverage terms dictate the out-of-pocket costs.

Life Insurance Needs Assessment

The "Human Life Value" method considers present income, inflation, and discount rates. For example, with a current income of $61,500, assuming a 3% inflation rate over 45 years and a 7% discount rate, the recommended insurance amount is approximately $1,236,658 to ensure income replacement upon premature death. Alternatively, the "Desired Income" approach estimates the necessary coverage to maintain survivors' lifestyle, factoring in tax rates and investment returns; an annual desired income of $55,000 with a 7% return and 22% tax rate suggests a needed insurance of about $2,301,255.

Age influences insurance needs; at age 40 with a $65,000 income and using a multiple of 12, the appropriate coverage approximates $780,000. The differences in these methods highlight the importance of personal circumstances and assumptions in planning.

Conclusion

Effective financial planning requires a comprehensive understanding of various factors, including mortgage terms, insurance coverage, and medical expenses. By applying systematic calculations and considering personal circumstances, individuals can make informed decisions to secure their financial future and protect their loved ones from unforeseen setbacks. It is crucial to regularly review and adjust these plans as life circumstances and economic conditions evolve.

References

• Garman, E., & Forgue, R. (2017). Personal Finance. Cengage Learning.
• Higgins, R. C. (2012). Wrapping Up Personal Finance. Cengage Learning.
• McClatchy, T., & Keown, B. (2014). Foundations of Finance: The Science of Money, 6th Edition. Pearson.
• SmartAsset. (2023). How mortgage interest is calculated. https://smartasset.com/mortgage/mortgage-interest-calculator
• Federal Reserve Bank. (2023). Consumer Credit and Consumer Payments. https://www.federalreserve.gov/consumerinfo.htm
• Insurance Information Institute. (2023). Auto Insurance Basics. https://www.iii.org/article/auto-insurance-basics
• National Association of Insurance Commissioners. (2023). Insurance Coverage and Requirements. https://www.naic.org/
• U.S. Department of Health & Human Services. (2023). Health Insurance Marketplace. https://www.healthcare.gov
• Bankrate. (2023). How to calculate your auto insurance costs. https://www.bankrate.com/insurance/cost-of-auto-insurance/
• Investopedia. (2023). How Life Insurance Works. https://www.investopedia.com/terms/l/lifeinsurance.asp