INVESTING BASICS AND EVALUATING BONDSThe triplets are now three-and-a-half years old and Jamie Lee...

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INVESTING BASICS AND EVALUATING BONDSThe triplets are now three-and-a-half years old and Jamie Lee and Ross, both 38, are finally beginning to settle down into a regular routine. The first three years were a blur of diapers, feedings, baths, mounds of laundry, and crying babies! Jamie Lee and Ross finally went out to a welcome dinner out on the town. Ross’s parents were watching the triplets. They were having a conversation about their future and the future of the kids. They figured college expenses will be $100,000, and their eventual retirement was a major worry for both of them. They have dreamed of owning a beach house when they retire. That could be another $350,000, 30 years from now. They wondered how could they possibly afford all of this. They agreed that it was time to talk to an investment counselor, but they wanted to organize all of their financial information and discuss their family’s financial goals before setting up the appointment.Questions1. Describe the stage in the adult life cycle (Exhibit 1–1) that Jamie Lee and Ross are experiencing right now. What are some of the financial activities that they should be participating in at this stage?2. After reviewing Jamie Lee and Ross’s current financial situation, suggest specific and measurable short-term and long-term financial goals that can be implemented at this stage.3. Using the investment goal guidelines, assess the validity of Jamie Lee and Ross’s short- and long-term financial goals and objectives:4. Using the formula for allocating investments and the risk involved, assess how much of Jamie Lee and Ross’s assets should be allocated in higher-risk growth investments? How should the remaining investments be distributed and what is the associated risk?5. Jamie Lee and Ross need to evaluate their emergency fund of $21,000. Will their present emergency fund be sufficient to cover them should one of them lose their job?6. Jamie Lee and Ross agree that by accomplishing their short-term goals, they can budget $5,000 a year toward their long-term investment goals. They are estimating that with the allocations recommended by their financial advisor, they will see an average return of 7 percent on their investments. The triplets will begin college in 15 years and will need $100,000 for tuition. Using the time value of money calculations found in the “Figure It Out!” information box found in this chapter, decide if Jamie Lee and Ross will be on track to reach their long-term financial goals of having enough money from their investments to pay the triplets’ tuition.

David · Accepted Answer

Answer 1
Age: - 35-44; Martial Status: - Married; 3 Dependent Preschool Children; Both Full-time employed; 
It is assumed that Ross parents are not dependant on them as none of the expense shows that Ross parents are dependant on them.
Jamie and Ross currently in the life situation “Young couple with Children under 18Years”
The following are some of the financial activities that they should be participating at this stage
1. Obtain appropriate amount of life insurance in the name of both Jamie and Ross
2. Carefully manage the increased need of Credit
3. Estate planning – Write a will to name the guardian for the children.
Answer 2
Long term Goals
1. Accumulate Corpus of $350,000 within 30 Years for the Beach house on the retirement. [Contributing Years are limited to balance period of employment]
2. Accumulate Corpus of $100,000 within 15 Years for the Triplets Education (tuition)
3. Accumulate Corpus of $2,370,000* within 30 Years for supporting the retirement expenses 
* Current Yearly Expenses 51,168. Assuming that inflation 4% this expense would roughly increase to an amount (rounded) of $166,000. Corpus required to generate $166,000 yearly income at 7% rate of return is $2,370,000 (Rounded). Current balance IRA of $32,000 with $3600 Yearly contribution would accumulate to ~$200,000 at 5% Rate of return and $271,000 at 7% Rate of Return. However IRA is not considered and assumed to create a buffer retirement fund.
Short term Goals
4. Pay off the Car loan of $ 2000 at the earliest** 
5. Pay off Credit Card balance of $ 4000 at the earliest**
6. Take Life Insurance in the name of both Jamie and Ross
**Considering that Jamie and Ross has checking account balance of $4,500 lying without earning any interest, $ 20,000 lying in the Saving Bank account. It is recommended to pay off using Car Loan/Credit Card using these balances. 
Interest incurred on Car Loan and Credit Card would surely be more than nterest earned in Savings account.

INVESTING BASICS AND EVALUATING BONDS The triplets are now three-and-a-half years old and Jamie Lee and Ross, both 38, are finally beginning to settle down into a regular routine. The first three...

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