The correct answers to this section are based on the set of facts and tables provided below.

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The correct answers to this section are based on the set of facts and tables provided below. All the data you need to perform the necessary calculations are contained in the tables following the three paragraphs below. Show all your calculations so you can receive partial credit even if you make a mistake. All answers must be typed, not handwritten.

Ralph and Alice are married and have a daughter, Morticia, age 8. Alice, age 30, earns $50,000 annually from her job. Ralph, age 27, earns $40,000 annually from his job. Assume that Alice will die before Ralph. The family wants to ensure that they have adequate life insurance on Alice to cover their cash and income needs if Alice dies. Hence, they want to determine how much additional life insurance they need to purchase on Alice to cover these needs.

The tables below provide figures on their: 1) cash needs; 2) present insurance and financial assets; 3) income needs; and 4) income that the family will receive if no additional life insurance is purchased. Use the figures in these tables to determine how much additional life insurance the family should purchase on Alice to cover their needs. In your answer, calculate and show the components of any additional life insurance needed in terms of cash needs and income needs and the total amount of additional life insurance needed.

This exercise assumes that: 1) Alice dies immediately; 2) Ralph continues to work if Alice dies; 3) OASDI survivor benefits are only payable to the daughter until she is age 18; and 4) the life insurance proceeds are invested at an interest rate equal to the rate of inflation: 2%.

Cash Needs:

estate clearance                                    $15,000

mortgage redemption              $150,000

emergency fund                                   $20,000

educational fund                     $100,000

Present Insurance and Financial Assets:

group life insurance                $150,000

investments/savings                $10,000

Income Needs:

readjustment period                $5,000 monthly for 2 years

dependency period                 $5,000 monthly for 8 years

blackout period                                   $3,500 monthly for 30 years

Ralph's retirement period       $3,000 monthly for 25 years

Expected Income from Sources Other than Life Insurance:

readjustment period                $3,500 monthly for 2 years

dependency period                 $3,500 monthly for 8 years

blackout period                                   $3,000 monthly for 30 years

Ralph's retirement period       $2,000 monthly for 25 years