Question

Personal Financial Planning Mini-Case Jeff and Mary Douglas, a couple in their mid-30s, have two children - Paul age 6 and Marcy age 7. The Douglas' do not have substantial assets and have not yet reached their peak earning years. Jeff is a general manager of a jewelry manufacturer in Providence, RI while Mary teaches at the local elementary school in the town of Tiverton, RI. The family needs both incomes to meet their normal living expenses and to meet unforeseen emergency purchases. Their cash flow situation is tight, and they have had difficulty growing a "nest egg" through savings and investing. Jeff and Mary have discussed the needs of their two children who are typical, healthy, and active kids. They have discussed trying to have Mary stay at home, be with the kids more and run the household but her income is very much needed, and she also wants a career and doesst want to put her teaching job on hold to be a stay-at-home mother. Jeff also wants (and needs) to work and his job often requires long days - beyond the 9-5 grind. Now that both children are in school there is no day care need and Mary's job schedule matches nicely with the children's schedule, so she not only wants to continue to work but is thinking about completing a graduate degree. Currently, Mary can take most of the summer off from teaching (when the children are home on vacation) and so she enjoys a great deal of flekibility in the summer and spends quite a bit of time with the children in the summer. Jeff is the breadwinner of the family, but Mary's contribution is also very significant. Jeff earns about 65% of the total household income with Mary earning the remainder. By completing a graduate degree, Mary could increase her salary by at least 20% but she would need to commit to a continuing education program at either Providence College or URI. Although their net worth is not substantial, they have big drehms and aspirations. Their personal financial objectives include goals that if achieved would provide a better life for their children than both Jeff and Mary had growing up in working class families in the Fall River and New Bedford areas. They want to help their children go to good colleges and leff and Mary want to have assets that allow them (Jeff and Mary) live a comfortable retirement. Both are in excellent health and have family histories of long-life expectancies. Their retirements (at age 65 or so) could be a period of 20 or more years. They own their home which has an assessed value of $200,000 and a market value of about $300,000 (as determined by a real estate appraiser based on recent sales of comparable homes in similar neighborhoods.) The mortgage on the home has a balance of $140,000. A review of the Douglas' financial information, bank statements, and other documents shows the following as of May 1, 2019: 2011 Camry worth about $11,000, with a bank loan balance of $3,000 2012 Volvo S60 worth about $15,000, with a bahk loan balance of $10,000 An insurance policy on Jeff's life with a face value of $100,000 and no cash surrender value. Mary is the beneficiary listed on Jeff's policy.

this is all the information given

Answer 1

Ans. Family's Net Worth = Total Assets - Total Liabilities

Current Ratio = Current Assets / Current Liabilities. An ideal current ratio is 2:1.

Debt Ratio = Total Debts / Equity. An ideal debt ratio is 2:1

The investment portfolio of a family depends on the risk taking capacity of the family. If the family is risk-averse, then it should invest in risk free securities. However, if a family is risk-aggressive, then it should invest in riskier securities.