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    Case Study #2, q3 and q4

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    amrindersingbains
    The document discusses a case study involving a woman named Lois who owns a store. It discusses the potential penalty she would face for discharging her mortgage early and what would happen if she became incapacitated from an accident in terms of lost income, disability insurance payouts, and an annuity from the Canada Pension Plan.

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    Case Study #2, q3 and q4

    Uploaded by

    amrindersingbains
    6 views3 pages
    The document discusses a case study involving a woman named Lois who owns a store. It discusses the potential penalty she would face for discharging her mortgage early and what would happen if she became incapacitated from an accident in terms of lost income, disability insurance payouts, and an annuity from the Canada Pension Plan.

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    The document discusses a case study involving a woman named Lois who owns a store. It discusses the potential penalty she would face for discharging her mortgage early and what would happen if she became incapacitated from an accident in terms of lost income, disability insurance payouts, and an annuity from the Canada Pension Plan.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    6 views3 pages

    Case Study #2, q3 and q4

    Uploaded by

    amrindersingbains
    The document discusses a case study involving a woman named Lois who owns a store. It discusses the potential penalty she would face for discharging her mortgage early and what would happen if she became incapacitated from an accident in terms of lost income, disability insurance payouts, and an annuity from the Canada Pension Plan.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    of 3

    Case Study 2

    Question 3. If Lois wants to sell the store, she will have to discharge her mortgage
    early. Interst rates on 2-year mortgages are 6.75% and the bank will impose a
    penalty using the interest rate differential approach. This year, she will reduce the
    principal by $7,000through her regular mortgage payments. What penalty will Lois
    have to pay to discharge the mortgage at the end of this year?

    Solution :

    Store was purchased quite a while back for 150,000 (50,000 for land and 100,000
    for the structure)
    Contract was 150,000 at 6.75%.
    Pending mortgage amount is 80,454.
    To pay her home loan, the bank will charge her 2 distinct interests. IRD method
    will be used. The premium on which the advance was acquired and the ongoing
    pace of interest charged for the leftover home loan.
    the difference of the interest rates which is charged as penalty, which will be 7000
    will be paid by her toward the year's end.

    Ascertaining IRD:-

    Mortgage Balance x Differential rate x Months remaining / 12 months


    73454 x (7.123% - 6.75%) x 24/12 = 547.967 per month

    Question. 4 Suppose Lois had a serious car accident, such that she suffers from
    amnesia and the doctors expect that it will take her the better part of a year to
    recover from her physical and mental injuries. What if Lois became completely
    incapacitated today? How would it impact the business? Where would the family
    get income and how much? What would you recommend?

    Solution: On the off chance that Lois had an critical accident, it would influence
    her the accompanying ways:

    • Loss of Pay
    • Childcare cost
    • Loss in business growth
    • Medical services cost

    Disability Protection:

    There are two kinds of disability protection: short and long term.

    short term gives advantages to as long as a half year. Then again, long term
    protection gives benefits (regularly scheduled installment) until the insure gets
    fully recovered or till the age of 65. For the most part, the recipient will get 60%-
    85% of their pay.

    On the off chance that Lois has private inability protection inclusion, the
    protection replaces between 60%-85% or a limit of her normal pay of $55,000
    until she recuperates or up to mature 65. Assuming Lois has long term protection,
    she'll get an "own occupation" plan for the initial two years, and the arrangement
    will change to "any occupation." The month-to-month benefits are tax-exempt. It's
    vital to learn well about the agreements, for example, how the arrangement
    characterizes incapacity and prohibitions.

    Key individual handicap protection can help in two ways:


    Assuming Lois becomes impaired, it can assist Lois with keeping on giving her
    monetary help until she recuperates or age 65, whichever starts things out.
    The protection will likewise help Lois constantly pay office costs and pay rates
    during the time of the handicap.

    The Canada Annuity Plan (CPP) handicap

    Lois is qualified for The Canada Annuity Plan (CPP) handicap benefit (regularly
    scheduled installment) assuming she meets the accompanying prerequisites:

    • She is under 65
    • She has made an adequate number of commitments to the CPP (no less
    than four of the beyond six years)
    • She has a psychological or actual handicap that prevents her from working
    regularly
    • She has an incapacity that is long haul and of endless length
    (Level Rate + 75% of most extreme CPP Retirement Pension)={$558.74 + $979.93
    (75% of $1,306.57)} = $1,538.67

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