Financial Plan

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KempCapstoneCaseSolution.xls
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Assumptions

Assumptions that can be changed for the case:
As the instructor, make entries on the yellow cells of this tab. The information in the yellow cells will automatically calculate
and flow to the remaining tabs. Therefore, the remaining cells are locked down.
Date of Balance Sheet and Investment Portfolio As of December 31, 2017
Time Period for Statement of Cash Flows For the Period January 1 - December 31, 2017
Risk-free Rate 2.75% (Enter a number between 0.95% - 5.25%)
Market Risk Premium 7.50% (Enter a number between 4.00% - 9.25%)
Market Standard Deviation 12.25% (Enter a number between 9.00% - 13.00%)
Inflation Rate 3.00% (Enter a number between 2.00% - 5.00%)
Savings Account 945,000 (Enter a number $0 - $1,000,000)
Credit Card Debt 14,708 (Enter a number $0 - $20,000)
Estate as Beneficiary for Life Insurance no Type "Yes" or "No"
Stock Portfolio Inputs that can be changed:
Stock A's Beta 1.1 (Enter a beta between 0.5 - 2.10)
Stock A's Expected Dividend Growth Rate 3.25% (Enter a growth rate between 2.75% - 3.25%)
Stock A's Cost Basis 200,000 (Enter a cost basis rate between $75,000 - $200,000)
Bond Inputs that can be changed:
Treasury Security A - 2 years to maturity $300,000 (Enter a beta between $100,000 - $400,000)
Corporate Security B - 4.5 years to maturity $200,000
Total Bond Portfolio $500,000 Par & Total
Coupon 1 Coupon 2 Coupon 3 Coupon 4 FMV
Treasury Security A - 2 years to maturity 1.5000% (Enter a coupon rate between 2.00% - 3.00%) 0.00 0.00 0.00 0.00
Current Yield for Treasury Security A 1.6500% (This will create a discount bond calculation) 1.0083 1.0166 1.0250 1.0334
0.00 0.00 0.00 0.00 0.00
Par &
Coupon 1 Coupon 2 Coupon 3 Coupon 4 Coupon 5 Coupon 6 Coupon 7 Coupon 8 Coupon 9 Coupon 10 Coupon 11 Coupon 12 Coupon 13 Coupon 14 Coupon 15 Coupon 16 Coupon 17 Coupon 18 Coupon 19 Coupon 20 Coupon 21 Coupon 22 Coupon 23 Coupon 24 FMV
Treasury Security B - 12 years to maturity 3.5000% (Enter a coupon rate between 4.00% - 4.50%) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Current Yield for Treasury Security B 3.8500% (This will create a discount bond calculation) 1.0193 1.0389 1.0589 1.0793 1.1000 1.1212 1.1428 1.1648 1.1872 1.2101 1.2334 1.2571 1.2813 1.3060 1.3311 1.3567 1.3828 1.4095 1.4366 1.4642 1.4924 1.5212 1.5504 1.5803
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Par &
Coupon 1 Coupon 2 Coupon 3 Coupon 4 Coupon 5 Coupon 6 Coupon 7 Coupon 8 Coupon 9 Coupon 10 Coupon 11 Coupon 12 Coupon 13 Coupon 14 Coupon 15 Coupon 16 Coupon 17 Coupon 18 Coupon 19 Coupon 20 Coupon 21 Coupon 22 Coupon 23 Coupon 24 Coupon 25 Coupon 26 Coupon 27 Coupon 28 Coupon 29 Coupon 30 Coupon 31 Coupon 32 Coupon 33 Coupon 34 Coupon 35 Coupon 36 Coupon 37 Coupon 38 Coupon 39 Coupon 40 Coupon 41 Coupon 42 Coupon 43 Coupon 44 Coupon 45 Coupon 46 Coupon 47 Coupon 48 Coupon 49 Coupon 50 Coupon 51 Coupon 52 Coupon 53 Coupon 54 Coupon 55 Coupon 56 FMV
Treasury Security C - 28 years to maturity 4.0000% (Enter a coupon rate between 4.00% - 4.50%) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Current Yield for Treasury Security C 4.4000% (This will create a discount bond calculation) 1.0220 1.0445 1.0675 1.0909 1.1149 1.1395 1.1645 1.1902 1.2163 1.2431 1.2705 1.2984 1.3270 1.3562 1.3860 1.4165 1.4477 1.4795 1.5121 1.5453 1.5793 1.6141 1.6496 1.6859 1.7229 1.7609 1.7996 1.8392 1.8796 1.9210 1.9633 2.0065 2.0506 2.0957 2.1418 2.1889 2.2371 2.2863 2.3366 2.3880 2.4405 2.4942 2.5491 2.6052 2.6625 2.7211 2.7809 2.8421 2.9047 2.9686 3.0339 3.1006 3.1688 3.2385 3.3098 3.3826
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Par &
Coupon 1 Coupon 2 Coupon 3 Coupon 4 Coupon 5 Coupon 6 Coupon 7 Coupon 8 Coupon 9 Coupon 10 Coupon 11 Coupon 12 Coupon 13 Coupon 14 Coupon 15 Coupon 16 Coupon 17 Coupon 18 Coupon 19 FMV
Florida Revenue Bond - 9.5 years to maturity 3.1250% (Enter a coupon rate between 4.00% - 4.50%) 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Current Yield for Florida Revenue Bond 3.6500% (This will create a discount bond calculation) 1.0183 1.0368 1.0558 1.0750 1.0946 1.1146 1.1350 1.1557 1.1768 1.1982 1.2201 1.2424 1.2650 1.2881 1.3116 1.3356 1.3600 1.3848 1.4100
0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00
PMT 1 PMT 2 PMT 3 PMT 4 PMT 5 PMT 6 PMT 7 PMT 8 PMT 9 PMT 10 PMT 11 PMT 12 PMT 13 PMT 14 PMT 15 PMT 16 PMT 17 PMT 18 PMT 19 PMT 20 PMT 21 PMT 22 PMT 23 PMT 24 PMT 25 PMT 26 PMT 27 PMT 28 PMT 29 PMT 30 PMT 31 PMT 32 PMT 33 PMT 34 PMT 35 PMT 36 PMT 37 PMT 38 PMT 39 PMT 40 PMT 41 PMT 42 PMT 43 PMT 44 PMT 45 PMT 46 PMT 47 PMT 48 PMT 49 PMT 50 PMT 51 PMT 52 PMT 53 PMT 54 PMT 55 PMT 56 PMT 57 PMT 58 PMT 59 PMT 60 PMT 61 PMT 62 PMT 63 PMT 64 PMT 65 PMT 66 PMT 67 PMT 68 PMT 69 PMT 70 PMT 71 PMT 72 PMT 73 PMT 74 PMT 75 PMT 76 PMT 77 PMT 78 PMT 79 PMT 80 PMT 81 PMT 82 PMT 83 PMT 84 PMT 85 PMT 86 PMT 87 PMT 88 PMT 89 PMT 90 PMT 91 PMT 92 PMT 93 PMT 94 PMT 95 PMT 96 PMT 97 PMT 98 PMT 99 PMT 100 PMT 101 PMT 102 PMT 103 PMT 104 PMT 105 PMT 106 PMT 107 PMT 108 PMT 109 PMT 110 PMT 111 PMT 112 PMT 113 PMT 114 PMT 115 PMT 116 PMT 117 PMT 118 PMT 119 PMT 120 PMT 121 PMT 122 PMT 123 PMT 124 PMT 125 PMT 126 PMT 127 PMT 128 PMT 129 PMT 130 PMT 131 PMT 132 PMT 133 PMT 134 PMT 135 PMT 136 PMT 137 PMT 138 PMT 139 PMT 140 PMT 141 PMT 142 PMT 143 PMT 144 PMT 145 PMT 146 PMT 147 PMT 148 PMT 149 PMT 150 PMT 151 PMT 152 PMT 153 PMT 154 PMT 155 PMT 156 PMT 157 PMT 158 PMT 159 PMT 160 PMT 161 PMT 162 PMT 163 PMT 164 PMT 165 PMT 166 PMT 167 PMT 168 PMT 169 PMT 170 PMT 171 PMT 172 PMT 173 PMT 174 PMT 175 PMT 176 PMT 177 PMT 178 PMT 179 PMT 180 PMT 181 PMT 182 PMT 183 PMT 184 PMT 185 PMT 186 PMT 187 PMT 188 PMT 189 PMT 190 PMT 191 PMT 192 PMT 193 PMT 194 PMT 195 PMT 196 PMT 197 PMT 198 PMT 199 PMT 200 PMT 201 PMT 202 PMT 203 PMT 204 PMT 205 PMT 206 PMT 207 PMT 208 PMT 209 PMT 210 PMT 211 PMT 212 PMT 213 PMT 214 PMT 215 PMT 216 PMT 217 PMT 218 PMT 219 PMT 220 PMT 221 PMT 222 PMT 223 PMT 224 PMT 225 PMT 226 PMT 227 PMT 228 PMT 229 PMT 230 PMT 231 PMT 232 PMT 233 PMT 234 PMT 235 PMT 236 PMT 237 PMT 238 PMT 239 PMT 240 PMT 241 PMT 242 PMT 243 PMT 244 PMT 245 PMT 246 PMT 247 PMT 248 PMT 249 PMT 250 PMT 251
Mortgage Interest Rate on Primary Residence 0.0000% Payment 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
Beginning Mortgage Amount $0 Interest - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Monthly Mortgage Payment $0.00 Principal - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -
Next 12 Months of Principal $0
Remaining Long-Term Mortgage Principal $0 Net Mortgage Outstanding 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0
PMT 1 PMT 2 PMT 3 PMT 4 PMT 5 PMT 6 PMT 7 PMT 8 PMT 9 PMT 10 PMT 11 PMT 12 PMT 13 PMT 14 PMT 15 PMT 16 PMT 17 PMT 18 PMT 19 PMT 20 PMT 21 PMT 22 PMT 23 PMT 24 PMT 25 PMT 26 PMT 27 PMT 28 PMT 29 PMT 30 PMT 31 PMT 32 PMT 33 PMT 34 PMT 35 PMT 36 PMT 37 PMT 38 PMT 39 PMT 40 PMT 41 PMT 42 PMT 43 PMT 44 PMT 45 PMT 46 PMT 47 PMT 48 PMT 49 PMT 50 PMT 51 PMT 52 PMT 53 PMT 54 PMT 55 PMT 56 PMT 57 PMT 58 PMT 59 PMT 60 PMT 61 PMT 62 PMT 63 PMT 64 PMT 65 PMT 66 PMT 67 PMT 68 PMT 69 PMT 70 PMT 71 PMT 72 PMT 73 PMT 74 PMT 75 PMT 76 PMT 77 PMT 78 PMT 79 PMT 80 PMT 81 PMT 82 PMT 83 PMT 84 PMT 85 PMT 86 PMT 87 PMT 88 PMT 89 PMT 90 PMT 91 PMT 92 PMT 93 PMT 94 PMT 95 PMT 96 PMT 97 PMT 98 PMT 99 PMT 100 PMT 101 PMT 102 PMT 103 PMT 104 PMT 105 PMT 106 PMT 107 PMT 108 PMT 109 PMT 110 PMT 111 PMT 112 PMT 113 PMT 114 PMT 115 PMT 116 PMT 117 PMT 118 PMT 119 PMT 120 PMT 121 PMT 122 PMT 123 PMT 124 PMT 125 PMT 126 PMT 127 PMT 128 PMT 129 PMT 130 PMT 131 PMT 132 PMT 133 PMT 134 PMT 135 PMT 136 PMT 137 PMT 138 PMT 139 PMT 140 PMT 141 PMT 142 PMT 143 PMT 144 PMT 145 PMT 146 PMT 147 PMT 148 PMT 149 PMT 150 PMT 151 PMT 152 PMT 153 PMT 154 PMT 155 PMT 156 PMT 157 PMT 158 PMT 159 PMT 160 PMT 161 PMT 162 PMT 163 PMT 164 PMT 165 PMT 166 PMT 167 PMT 168 PMT 169 PMT 170 PMT 171 PMT 172 PMT 173 PMT 174 PMT 175 PMT 176 PMT 177 PMT 178 PMT 179 PMT 180 PMT 181 PMT 182 PMT 183 PMT 184 PMT 185 PMT 186 PMT 187 PMT 188 PMT 189 PMT 190 PMT 191 PMT 192 PMT 193 PMT 194 PMT 195 PMT 196 PMT 197 PMT 198 PMT 199 PMT 200 PMT 201 PMT 202 PMT 203 PMT 204 PMT 205 PMT 206 PMT 207 PMT 208 PMT 209 PMT 210 PMT 211 PMT 212 PMT 213 PMT 214 PMT 215 PMT 216 PMT 217 PMT 218 PMT 219 PMT 220 PMT 221 PMT 222 PMT 223 PMT 224 PMT 225 PMT 226 PMT 227 PMT 228 PMT 229 PMT 230 PMT 231 PMT 232 PMT 233 PMT 234 PMT 235 PMT 236 PMT 237 PMT 238 PMT 239 PMT 240
Mortgage Interest Rate on Vacation Home 5.0000% Payment 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627 627
Beginning Mortgage Amount $95,000 Interest (396) (395) (394) (393) (392) (391) (390) (389) (388) (387) (386) (385) (384) (383) (382) (381) (380) (379) (378) (377) (376) (375) (374) (373) (372) (371) (369) (368) (367) (366) (365) (364) (363) (362) (361) (360) (359) (357) (356) (355) (354) (353) (352) (351) (349) (348) (347) (346) (345) (344) (342) (341) (340) (339) (338) (336) (335) (334) (333) (332) (330) (329) (328) (327) (325) (324) (323) (322) (320) (319) (318) (316) (315) (314) (313) (311) (310) (309) (307) (306) (305) (303) (302) (301) (299) (298) (296) (295) (294) (292) (291) (290) (288) (287) (285) (284) (282) (281) (280) (278) (277) (275) (274) (272) (271) (269) (268) (266) (265) (263) (262) (260) (259) (257) (256) (254) (253) (251) (249) (248) (246) (245) (243) (242) (240) (238) (237) (235) (233) (232) (230) (228) (227) (225) (223) (222) (220) (218) (217) (215) (213) (212) (210) (208) (206) (205) (203) (201) (199) (198) (196) (194) (192) (190) (188) (187) (185) (183) (181) (179) (177) (176) (174) (172) (170) (168) (166) (164) (162) (160) (158) (156) (154) (152) (150) (148) (146) (144) (142) (140) (138) (136) (134) (132) (130) (128) (126) (124) (122) (120) (118) (116) (113) (111) (109) (107) (105) (103) (100) (98) (96) (94) (92) (89) (87) (85) (83) (80) (78) (76) (74) (71) (69) (67) (64) (62) (60) (57) (55) (52) (50) (48) (45) (43) (40) (38) (35) (33) (31) (28) (26) (23) (21) (18) (15) (13) (10) (8) (5) (3)
Monthly Mortgage Payment $626.96 Principal 231 232 233 234 235 236 237 238 239 240 241 242 243 244 245 246 247 248 249 250 251 252 253 254 255 256 258 259 260 261 262 263 264 265 266 267 268 270 271 272 273 274 275 276 278 279 280 281 282 283 285 286 287 288 289 291 292 293 294 295 297 298 299 300 302 303 304 305 307 308 309 310 312 313 314 316 317 318 320 321 322 324 325 326 328 329 330 332 333 335 336 337 339 340 342 343 345 346 347 349 350 352 353 355 356 358 359 361 362 364 365 367 368 370 371 373 374 376 378 379 381 382 384 385 387 389 390 392 394 395 397 398 400 402 403 405 407 409 410 412 414 415 417 419 421 422 424 426 428 429 431 433 435 437 438 440 442 444 446 448 450 451 453 455 457 459 461 463 465 467 469 471 473 475 476 478 480 482 484 487 489 491 493 495 497 499 501 503 505 507 509 511 514 516 518 520 522 524 526 529 531 533 535 538 540 542 544 547 549 551 553 556 558 560 563 565 567 570 572 575 577 579 582 584 587 589 592 594 596 599 601 604 606 609 612 614 617 619 622 624
Next 12 Months of Principal 6,711
Remaining Long-Term Mortgage Principal 12,581 Net Mortgage Outstanding 94,769 94,537 94,304 94,070 93,835 93,599 93,362 93,124 92,885 92,645 92,404 92,162 91,919 91,675 91,430 91,184 90,937 90,689 90,440 90,190 89,939 89,686 89,433 89,179 88,924 88,667 88,410 88,151 87,891 87,631 87,369 87,106 86,842 86,577 86,310 86,043 85,775 85,505 85,234 84,963 84,690 84,416 84,140 83,864 83,586 83,308 83,028 82,747 82,465 82,181 81,897 81,611 81,324 81,036 80,747 80,456 80,165 79,872 79,578 79,282 78,986 78,688 78,389 78,088 77,787 77,484 77,180 76,874 76,568 76,260 75,951 75,640 75,328 75,015 74,701 74,385 74,068 73,750 73,430 73,109 72,787 72,463 72,138 71,812 71,484 71,155 70,824 70,492 70,159 69,825 69,488 69,151 68,812 68,472 68,130 67,787 67,443 67,097 66,749 66,401 66,050 65,699 65,345 64,991 64,634 64,277 63,918 63,557 63,195 62,831 62,466 62,099 61,731 61,361 60,990 60,617 60,243 59,867 59,490 59,110 58,730 58,348 57,964 57,578 57,191 56,803 56,412 56,020 55,627 55,232 54,835 54,436 54,036 53,634 53,231 52,826 52,419 52,010 51,600 51,188 50,774 50,359 49,942 49,523 49,102 48,680 48,256 47,830 47,402 46,973 46,542 46,109 45,674 45,237 44,799 44,358 43,916 43,472 43,026 42,579 42,129 41,678 41,225 40,769 40,312 39,853 39,392 38,930 38,465 37,998 37,529 37,059 36,586 36,112 35,635 35,157 34,676 34,194 33,709 33,223 32,734 32,244 31,751 31,257 30,760 30,261 29,760 29,257 28,752 28,245 27,736 27,224 26,711 26,195 25,677 25,157 24,635 24,111 23,584 23,056 22,525 21,992 21,456 20,919 20,379 19,837 19,293 18,746 18,197 17,646 17,093 16,537 15,979 15,419 14,856 14,291 13,723 13,154 12,581 12,007 11,430 10,851 10,269 9,685 9,098 8,509 7,918 7,324 6,727 6,128 5,527 4,923 4,316 3,707 3,096 2,482 1,865 1,246 624 (0)

Kemp Case

John and Mary Kemp
You are a financial planner and you have met with new clients John and Mary Kemp several times to gather information for the purposes of
developing a comprehensive financial plan. You will provide a $10,000 payment to the estate planning attorney who recommended them to
you.
John Kemp is 68 years old, and his wife, Mary, is 68. They have two children, Steven, age 38, and Robert, age 36. They also have three
grandchildren. Steven has two sons, Michael, age 15, and James, age 10. Robert has a daughter Sara, age 11. Robert's wife, Sara's mother,
died in an automobile accident approximately 2 years ago. All of the Kemp family members are in excellent health.
John had his own business in marketing and was extremely successful. He sold his business 3 weeks ago to his a third party for $6,000,000
using an installment note. The terms of the agreement are: 20% down payment, 10-year, 4.5% note that will start paying quarterly installment
payments starting on May 1, 2017.
The Kemp's live in a home that they had built in 1983. The home is located in River Edge, NJ and is titled in both spouse's names. John
inherited a summer home in Burlington, Vermont. His dad had the home built in 1972 for $35,000. He received the home in 1989 when his
dad died. The property was worth $150,000 at his father's death. Since this time, John has made $130,000 of improvements.
John owned a marketing company for the majority of his career. For the past 20 years, Mary was a cashier at the local Shop-Rite grocery
store. Both spouses retired when John sold his business and want to know when they should begin collecting Social Security benefits. The
monthly Social Security benefits are $1,200 for John and $750 for Mary. They both held 401(k) retirement accounts at their previous jobs.
The couple has just returned from a two week vacation in Europe. The current credit card balance on Mary's card from this trip and will be
paid in full when the bill is received.
John's dad used to collect stamps as a child. When his dad died in 1989, his mother received a 1918, mint, 24 cent, "inverted Jenny" stamp.
He purchased the stamp in 1972 for $75,000 and it was worth $500,000 on his death. John's mother just gifted to him the stamp when the
value was $725,000. He believes this is a great investment that will appreciate approximately 8% per year. However, he would like to know
what he would owe in taxes if it sold in 10 years for $1,550,000.
Scope of the engagement: The Kemps have asked you to develop a comprehensive financial plan that will help them meet their goals and
help them improve their financial position. The Kemps want you to prepare a statement of net worth and review their various insurance policies
for proper coverage. They expressed an interest in acquiring long-term care insurance and they want you to recommend the type of policy
they should purchase. They also want you to review their investment portfolio and recommend an asset allocation strategy that maximizes
investment performance, is diversified, and matches their risk tolerance level. The couple is very concerned about how the additional income
from the installment agreement will be taxed. They would like you invest the 20% down payment and future installment payments.
Their only liquidity need is $40,000 for a new car (this is net of any trade-in). Their current marginal tax bracket is at the highest federal rate.
In addition, the couple has asked you to review and recommend estate and gift tax minimization strategies. Lastly, the Kemps are not
concerned about saving for retirement. However, they would like you to evaluate how they can grow the 401(k) tax-free and distribute the
maximum amount left in the account to their two children upon death.
Goals: John and Mary have worked with you to prioritize their goals in the following order.
1) Reduce any estate and gift tax liability and insure all estate planning documents are in order.
2) Review insurance contracts and discuss the implications of purchasing a long-term care policy.
3) Establish a college funding plan for the three grandchildren.
4) Reduce personal income taxes.
5) Based on their risk tolerance level, recommend a diversified portfolio that meets the Kemp's investment needs and expectations.
Risk tolerance: The Kemps are very willing to take investment risks. Although the Kemps invest in the stock market using both mutual funds
and individual stocks, they do not want you to invest in tobacco stocks as both of their parents died from lung cancer. They have asked you
to reconcile the portfolio with their ability and willingness to accept risk, and develop an investment strategy and asset allocation that will
achieve their investment goals.
Current and Future Economic Information:
Risk-free Rate 3.00%
Market Risk Premium 7.00%
Market Standard Deviation 11.00%
Inflation Rate 2.85%
Note - Interest rates and inflation look to increase in both the short-term and long-term forecasts.
Assets: FMV
Cash & Checking Account - Joint Account 5,000
Savings Account - Joint Account 945,000
Certificate of Deposits - John 180,000
Policy #1 John transferred to an ILIT in 2015
Death Benefit of Term Life Policy #1 - John 4,000,000
Policy #2 - Mary's Policy
Death Benefit of Universal Life Policy #2 - Mary 400,000
Cash Value of Universal Life Policy #2 - Mary 155,000
Policy #2 - Interpolated terminal cash reserve value 175,000
Individual Stock Portfolio 940,000 (Details Provided in Attached Schedule)
Mutual Fund Portfolio 2,907,682 (Details Provided in Attached Schedule)
Installment Receivable 216,810 (10-year note - see terms found above)
401(k) Account - John 1,054,540 (Details Provided in Investment Portfolios Tab)
401(k) Account - Mary 105,000 (Details Provided in Investment Portfolios Tab)
Annuity 72,000 (Details Provided in Attached Policy Information)
Primary Residence - FMV Land 125,000 (Owned as Joint Tenants)
Primary Residence - FMV Building 775,000 (Owned as Joint Tenants)
Cost Basis of Primary Residence 370,000 (Owned as Joint Tenants)
Vacation Home - FMV Land 200,000 (Owned by John)
Vacation Home - FMV Building 550,000 (Owned by John)
Cost Basis of Vacation Home 35,000 (Owned by John)
Auto - 2014 Chevy Automobile 20,000 (Owned by Mary)
Auto - 2015 Chevy SUV 35,000 (Owned by John)
Boat - 2016 Sea Ray 24" Boat & Trailer 95,000 (Owned by John)
Furniture & Personal Property 150,000 (Owned as Joint Tenants)
1918 Inverted Jenny Stamp 725,000 (Owned by John)
Monthly Mortgage on Primary Residence -
Original Mortgage Amount -
Interest Rate on Primary Residence Mortgage 0.00%
Monthly Mortgage on Vacation Home 626.96 (20-yr mortgage with 207 payments completed, 33 payments remaining as of balance sheet date)
Original Mortgage Amount 95,000
Interest Rate on Vacation Home Mortgage 5.00%
Current Credit Card Debt 14,708 (Owned by Mary)
Cost of administration, burial expense and state death taxes for each spouse upon death:
Administrative expense $150,000
Burial Expenses $25,000
Wills:
John's estate will pass to his wife Mary, as primary beneficiary of his will. Mary has executed a will that leaves her estate to John, as
primary beneficiary. The second beneficiaries for both spouse's estates are the children Steven and Robert, per stripes, in equal proportions.
Homeowners Policy - Primary Residence
Type of Policy HO-3
Face Amount $400,000
Premium $1,825
Deductible $500
Liability $250,000
Medical Payments $50,000 Per Person Per Occurrence
Anniversary Date July 15th
Endorsements None
Homeowners Policy - Vacation Home
Type of Policy HO-3
Face Amount $460,000
Premium $3,000
Deductible $500
Liability $175,000
Medical Payments $50,000 Per Person Per Occurrence
Anniversary Date July 15th
Endorsements None
Automobile Policy
Premium $3,300
Bodily Injury & Property Damage $200,000 / $600,000 / $15,000
Comprehensive Deductible $350
Collision Deductible $500
Anniversary Date July 15th
Umbrella Policy
Premium $325
Coverage $1,000,000
Anniversary Date July 15th
Health Insurance Policy
Premium $2,435 Total yearly premium for John & Mary
Coverage Medicare Part B
Policy #1 was transferred to an ILIT in 2015
Insured John Kemp
Owner John Kemp
Beneficiary Mary Kemp
Contingent Beneficiary Steven and Robert Kemp - 50% each
Face Amount $4,000,000
Type of Policy Term Insurance - Ends June 8, 2022
Anniversary Date June 09, 1992
Total Contributions $375,000
Annual Premium $55,000
Life Insurance - Policy #2
Insured Mary Kemp
Owner Mary Kemp
Beneficiary John Kemp
Contingent Beneficiary Steven and Robert Kemp - 50% each
Face Amount $400,000
Type of Policy Universal Life
Anniversary Date June 12, 1992
Total Contributions $125,000
Annual Premium $5,000
Annuity Policy
Type of Policy Non-Qualified Single Premium Deferred Annuity (SPDA)
Issue Date August 15, 2001
Owner John Kemp
Primary Beneficiary Mary Kemp
Contingent Beneficiary Steven and Robert Kemp - 50% each
Original Investment into SPDA $30,000
Other Additions $0
Since Inception Basis Withdrawals $5,000

Kemp Balance Sheet

Statement of Financial Position
John and Mary Kemp
Balance Sheet / Statement of Financial Worth
As of December 31, 2017
Assets(1) Liabilities & Net Worth(2)
Cash and Equivalents Liabilities (Current)
JT Cash & Checking $ 5,000 Credit Card Debt $ 14,708 W
JT Savings Account 945,000 Current Portion - Primary Residence - JT
H Certificate of Deposits 180,000 Current Portion - Vacation Home 14,364 H
W Cash Value of Universal Life Insurance #2 155,000 Total Current Liabilities $ 29,072
Total Cash and Equivalents $ 1,285,000
Invested Assets Liabilities (Long-Term)
JT Stock Portfolio $ 940,000 Long-Term Portion - Primary Residence $ - JT
H Mutual Fund Portfolio 2,907,682 Long-Term Portion - Vacation Home 95,000 H
H Installment Receivable 216,810 Total Liabilities Long-Term $ 95,000
H 401(k) Account - John 1,054,540
W 401(k) Account - Mary 105,000 Total Liabilities $ 124,072
H Annuity Policy (3) 72,000
Total Invested Assets $ 5,296,032
Personal-Use Assets
JT Primary Residence (4) $ 900,000
H Vacation Home (5) 750,000
H Auto - 2015 Chevy SUV 35,000
W Auto - 2014 Chevy Automobile 20,000 Net Worth $ 9,131,961
JT Furniture & Personal Property 150,000
H 2016 Sea Ray 19" Boat 95,000
H 1918 Inverted Jenny Stamp 725,000
Total Use Assets $ 2,675,000
Total Assets $ 9,256,032 Total Liabilities & Net Worth $ 9,256,032
Notes to Financial Statements:
(1) = All assets are stated at fair market value
(2) = Liabilities are stated at principal only
(3) = Primary Beneficiary Designation is spouse. Contingent beneficiary is children in equal percentages
(4) = FMV of Land is $125,000. Cost basis is $370,000
(5) = FMV of Land is $200,000.
2) Calculate the current ratio as of 12/31/17 and explain any strengths or weaknesses of this ratio:
Current ratio= current assets/ current liabilities
1285000
Strengths
a) Since the ratio is high, the couple's financial position is more stable and has lower risk of being liquid.
b) The know how of this current ratio will enable the couple to optimize overhead costs and plan inventory.
Weaknesses
a) The current ratio doesn't predict the quality of thcurrent assets, hence has a bit of insufficiency.
b) Due to the absolete nature of the couple's investment portion,, overestimation of the liquidity portionmay occur, in this case the risk of being liquid
is low and this may as well not be the case.
3) Explain any weakness pertaining to the amount of cash and cash equivalents owned:
The amount set aside in the cash equivalents may exceed what was needed to cater for short term assets and liabilities, for example, the $40000
worth cash, hence the couple may miss out on potential revenue as the money could have produced higher returns elsewhere for example in shock
investments or John's stamp investments.
John and Mary want to contribute a portion of their inheritance to fund 529 plans for each grandchild. What is the maximum amount they
can contribute in the current year if they do not want to incur any gift tax and they elect to gift split? Also, what tax forms are required?
4) What are the maximum 529 plan contributions that the couple can make this year?
529 plans have no income limits and John and Mary can utilize as much as $140,000 for each beneficiary in annual exclusions.
The lifetime limits could be as high as $500,000.
From their inheritance which is around $250,000 for the summer house given to John as inheritance and the assumption that the stamp
inherited is worth $1,550,000 if sold.
5) What tax form must be filed and what is the due date?
The tax form that must be filled is IRS Form 1099-Q which usually comes from the administrator or bank and it usually reports the total
withdrawals you made during the year.
One should receive the form no later than early February as it should be returned at the end of the year.
6) Identify two advantages and two disadvantages for making these 529 plan contributions.
Avantages
The contribution plan has a high limit of contribution, therefore John and Mary can save more for the grandchildren's college fund.
The plan contribution scheme can allow one to avoid a gift tax by treating the amound they give to the beneficiaries as a gift.
Disadvantages
The plan charges expenese and fees that are used to pay for account administration and also investment expenses.
The plan savings for college is subject to risk as the money contributed can be lost and it doesn’t guarantee one's return.

Cash Flow

John and Mary Kemp
Statement of Cash Flow
For the Period January 1 - December 31, 2017
Cash Inflows
Social Security Benefits - John 14,400
Social Security Benefits - Mary 9,000
Installment Receivable - John 655,284
Investment Income - Interest, Dividends and Capital Gains 235,615
Total Income $ 914,299
Cash Outflows
Mortgage Payments (Principal & Interest) - Residence $ -
Mortgage Payments (Principal & Interest) - Vacation Home 14,364
Real Estate Taxes - Residence 14,335
Real Estate Taxes - Vacation Home 7,225
Food 20,000
Utilities, Cable, Etc. 6,200
Auto Excise 2,555
Cell Phone 2,000
Home Maintenance (Lawn, Snow, Etc.) & Repairs 7,000
Charity (Cash) 35,000
Out of Pocket Medical 7,500
Personal Care 4,400
Clothing and Cleaning 4,100
Homeowners Insurance Premiums - Primary Residence 21,900
Homeowners Insurance Premiums - Vacation Home 3,600
Auto Insurance Premiums 39,600
Umbrella Policy Premiums 3,900
Premiums on John's Term Life Insurance Policy #1 55,000
Premiums on Mary's Universal Life Insurance Policy #2 5,000
Vacation 35,000
Gas, Tolls, Auto Repairs 3,500
Entertainment, Dining Out, Fun Money 8,500
Medicare Part - B Insurance Premiums 2,435
Federal & State Income Taxes 135,000
Federal & State Income Taxes 30,000
Total Expenses $ 468,114
Net Disposable Income $ 446,185

Insurance Analysis

John and Mary Kemp
Insurance Analysis
If the Winooski River floods causing $100,000 of damage to the vacation home, what amount will the homeowners policy cover?
1) Homeowners Benefit Calculation:
A flat percentage of 50%
50%*100000=50000
Therefore $50000 would be covered
Assume that John want to annuitize the annuity and is told that he can receive a straight life annuity for $350 a month for life. If the actuarial
number of payments is 300, how much of the first $350 amount is taxable and how much is the return of basis?
2) Tax consequences of receiving the 1st annuity payment of $350:
Their type of policy is a non qualified single premium annuity, it is therefore tax deferred until the policy starts being annuitized .
Therefore in this case, the first annuity payment is taxed like any other qualified account and it does not provide a step-up in cost basis at death.
Payment Received $350.00
Less: Return of Basis - 0
Taxable Amount $350.00
3) The tax consequences of gifting the annuity:
Because the monthly straight amount is so low, John would like to know the tax consequences and filing requirements if he gifts this to his
granddaughter Sara. Assume that Mary will elect to gift spilt. John and Mary want you to explain any generation skipping tax liability or tax
consequences to this gift to Sara. For generation skipping transfer tax purposes, what is the taxable amount of the gift? Please note, do
not assume this is being gifted when calculating the gross estate.
Total John Mary
Total FMV at Time of Gift $210,000 $105,000 $105,000
Less: Gift Tax Exclusion - John (28,000) (14,000) (14,000)
Less: Gift Tax Exclusion - Mary (28,000) (14,000) (14,000)
Net Taxable gift $154,000 $77,000 $77,000
4) What tax form is required and when is it due?
You recommend a long-term care policy for both John and Mary. The policy is a comprehensive policy that allows each spouse to share
the other spouse's policy benefits. The benefits will be paid for 3 years or up to $360,000, whichever come first. The annual premiums are $4,750
for John and $4,000 for Mary. Ignoring any AGI limitation, what amount of the premium is allowed as a medical deduction if the couple
itemizes their income taxes in 2017?
5) Allowable Long-Term Care Premium: John Mary Total
Total Premium $360,000 $360,000 $720,000
Less: Allowed Amount (14,250) (12,000) (26,250)
Disallowable Premium Amount $345,750 $348,000 $693,750

Investment Portfolios

John and Mary Kemp
Supplemental Investment Information
As of December 31, 2017
Non-Qualified Accounts
Stock Portfolio (a)
Date Shares Cost FMV as of
Stock Acquired owned Basis Today Beta
A 03/15/01 3,500 $225,000 $7,000 1.35
B 04/26/05 7,500 $125,000 $183,000 0.95
C 07/26/06 1,000 $110,000 $195,000 1.48
D 08/15/11 1,000 $500,000 $555,000 1.03
Totals $960,000 $940,000
(a) = All dividends and capital gain distributions are received in cash.
Mutual Fund Portfolio
Mutual Coefficient of Expected Cost FMV as of
Fund Determination Return Beta Basis Today
Balanced 0.98 8.90% 0.82 $750,000 $1,054,540
Growth 0.93 13.55% 1.44 $150,000 $331,314
Bond 0.95 9.58% 0.91 $350,000 $421,820
International 0.94 15.73% 1.73 $750,000 $1,100,008
Totals $2,000,000 $2,907,682
Qualified Accounts
John's 401(k) Account:
Mutual Coefficient of Expected Pre-Tax FMV as of
Fund Determination Return Beta Cost Basis Today
S&P 500 Index 1.00 9.65% 1 $605,000 $1,054,540
Totals $605,000 $1,054,540
Beneficiary is John's estate.
Mary's 401(k) Account:
Mutual Coefficient of Expected Pre-Tax FMV as of
Fund Determination Return Beta Cost Basis Today
2015 Fund 0.98 8.90% 0.82 $50,000 $105,000
Totals $50,000 $105,000
Beneficiary is Mary's estate.
1) Investment Policy Statement for John and Mary Kemp
Objectives:
Return Objective A total return approach should be used to pursue the Kemp’s income objectives as well as preservation of capital.
Risk Tolerance The Kemp's are in the _execution____________ phase of the lifecycle. They have an _aggresive______________ willingness to take on risk.
Based on their overall wealth position, they have an __extensive____________ ability to take risk.
Constraints:
Time Horizon The Kemp's have a multistage time horizon. The first stage will last for approximately 30 years or more in retirement.
The second stage will be to disburse any remaining assets to their children and grandchildren.
Liquidity The current liquidity need is _$40,000 for a new car_____________________.
Laws and Regulations No special legal or regulatory issues are known at the present time. However, the Kemps must review their wills and address any
immediate estate tax planning issues.
Taxes Taxes are an area of concern. The bulk of the income generated by the portfolio will likely be taxed as ordinary income. The
couple's total (federal and state) marginal tax rate is approximately 44%. Taxes are incorporated into their spending budget and
therefore do not have to be taken into account in the discount rate for the portfolio return requirement.
Unique Circumstances Changes in future tax policies that may affect overall performance of portfolio__________________________________________________________________________________________________________
2) Calculate the Weighted Beta of Stock Portfolio:
Weighted Weighted
Stock FMV Average Beta Beta
A $7,000 0.74% 1.35 0.0101
B $183,000 19.47% 0.95 0.1849
C $195,000 20.74% 1.48 0.3070
D $555,000 59.04% 1.83 1.0805
$940,000 100.00% 1.5825
3) Calculate the CAPM of the Stock Portfolio:
CAPM=rf+B(rm-rf) 3%-1.5825(7%-3%)
rf-risk free rate 0.0933
B-beta
rm-market return
Assume that the stock portfolio and mutual fund portfolio combined had a 10.25% return and a standard deviation of 12.5%. What is the Sharpe Ratio of the portfolio
and how does this portfolio compare to the Sharpe Ratio of the market portfolio?
4) Calculate the Sharpe Ratio of the Stock Portfolio and the Market:
The Sharpe Ratio for the portfolio is:
Sharpe ratio = (Mean portfolio return − Risk-free rate)/Standard deviation of portfolio return
(10.25%-3%)/12.5%
0.58
The Sharpe Ratio for the market is:
Sharpe ratio = (Mean market return − Risk-free rate)/Standard deviation of market return
(7%-3%)/11%
0.37
Determine if the portfolio over- or underperformed compared to the market portfolio.
The sharpe ratio market portfolio is under performed compared to the portfolio since it is comparatively lower
5) Portfolio Recommendations:
The couple may not have a choice over individual assets as this might be chosen by the fund managers but the can choose a sector of assets for example equity
property, index linked bonds, fixed interest bonds, cash and money market instruments and overseas investments
Equity can be a good investment choice since the couple has a high risk tolerance level, however equity as a real investment can be volatile and hence may not be
a suitable investment over retirement.
Property can be assesed by the couple via a unitised property fund and can provide diversification from equity. However, since its return is a long term growth cluster
it may not be advisable for their life cycle. Market values for property are more stable than those for equity.
Funds chosen for investment need to reflect on the couple's personal circumstances such as sources of inconme in retirement and their risk appetite.

Tax Analysis

John and Mary Kemp
Tax Analysis
John would like to know how the down payment and 1st installment for the sale of his business will be treated for tax purposes. The business was
sold 3 weeks ago to his son for $6,000,000. The terms of the agreement are: 20% down payment, 10-year, 4.5% note that will start paying
quarterly on May 1, 2017. The tax basis is $1,450,000.
1) Calculate the tax treatment realized on the down payment:
20%*6000000=1200000
Down Payment $1,200,000
Less: Return of Basis 1,450,000
Realized & Recognized Long-Term Capital Gain $2,650,000
2) Calculate the tax treatment realized on the 1st installment payment (round to the nearest dollar):
P ((1+r)^n)/((1+r)^n-1) interest income=4.5%*4800000/4=54000
P-4800000
r-4.5%/4
n-10*4
Installment Payment $54,607
Less: Interest Income (54,000)
Net $607
Less: Return of Basis -
Realized & Recognized Long-Term Capital Gain $607
Without changing any calculations above, assume that there is building that John owns that the purchaser of the business does not want to buy
that was originally purchased for $350,000 and that the land was allocated as $200,000 and the building as $150,000. If sold today, assume the
accumulated depreciations is $83,726
3) If the sales price of the building is $1,000,000, what is the Section 1250 gain and the Section 1231 gain that would be reported?
Sales Proceeds $1,000,000
Less: Adjusted Basis $66,274
Realized Gain $1,066,274
Section 1250 Gain $20,932
Section 1231 Gain $127,500
4) What is the tax rate that the Section 1250 gain be reported at?
25% tax rate is charged on short term basis on the amount gained after caterin for depreciation
25% of 83726 from the gain 933726
5) What is the tax rate that the Section 1231 gain be reported at?
15% tax rate is charged on long term amount after adjusting the basis
15% of 850000 (as the remaining gain)
6) Assume that John sells the 1918 inverted Jenny stamp in 10 years for $1,550,000 and there is a 15% commission and they are in the
highest marginal tax bracket. What is the federal tax liability on this sale?
1918 Inverted Jenny Stamp $1,550,000
Less: 15% Commission $232,500
Adjusted Sales Price $1,782,500
Less: Cost Basis $75,000
Realized & Recognized Gain $1,857,500
Tax Rate 39.60%
Federal Tax Liability $735,570

Retirement Analysis

John and Mary Kemp
Retirement Analysis
Assume John cashed in his 401(k) when the FMV was $1,054,540. He receives a check and deposits the proceeds a few days later into his IRA
account. What will the value be after 3 years if the account grows at a 3% guaranteed CD rate, ignoring any required minimum distributions that
may apply?
1) Future value of John's IRA account:
FV=X*(1+i)^n FV=1054540*(1.03)^3
1. FV = future value. 1152324.331
2. X = original investment.
3. i = interest rate.
4. n = number of years.
2) How can John and Mary grow the retirement assets tax-free?
a) They can use IRA which they can save with tax deferred money. In this case they pa no taxes until they pay no taxes until the money is withdrawn. There is also the option of Roth IRA where the money is taxed upfront but grows tax free and
the contributions and earnings are not taxed when withdrawn
b) John and Mary can also decide to make contributions to a heath care savings account as the earnings will grow tax free and the contributions are tax deductable
3) Based on the facts in this case, for the year 2017, what is the maximum amount that John and Mary can contribute to an IRA? Also,
would you recommend a Roth IRA, a deductible IRA or a non-deductible IRA?
At retirement both John and Mary are 68. Therefore, according to the IRA limit, the maximum they can contribute each is $6,500.
I would recommend a Roth IRA because the money put in the retirement account grows tax free and when you withdraw at retirement you pay no taxes.

Estate Calculations

Statement of Financial Position
John and Mary Kemp
Balance Sheet / Statement of Financial Worth
As of December 31, 2017
Assets(1) Liabilities & Net Worth(2)
Cash and Equivalents Liabilities (Current)
JT Cash & Checking 5,000 Credit Card Debt $ 14,708 W
JT Savings Account 945,000 Current Portion - Primary Residence - JT
H Certificate of Deposits 180,000 Current Portion - Vacation Home 14,364 H
W Cash Value of Universal Life Insurance #2 155,000 Total Current Liabilities $ 29,072
Total Cash and Equivalents $ 1,285,000
Invested Assets Liabilities (Long-Term)
JT Stock Portfolio $ 940,000 Long-Term Portion - Primary Residence $ - JT
H Mutual Fund Portfolio 2,907,682 Long-Term Portion - Vacation Home 95,000 H
H Installment Receivable 216,810 Total Liabilities Long-Term $ 95,000
H 401(k) Account 1,054,540
W 401(k) Account 105,000 Total Liabilities $ 124,072
H Annuity Policy (3) 72,000
Total Invested Assets $ 5,296,032
Personal-Use Assets
JT Primary Residence (4) $ 900,000
H Vacation Home (5) 750,000
H Auto - Chevy SUV 35,000
W Auto - Chevy Automobile 20,000
JT Furniture & Personal Property 150,000
H 2015 Sea Ray 24" Boat & Trailer 95,000 Net Worth $ 9,131,961
H 1918 Inverted Jenny Stamp 725,000
Total Use Assets $ 2,675,000
Total Assets $ 9,256,032 Total Liabilities & Net Worth $ 9,256,032
Notes to Financial Statements:
(1) = All assets are stated at fair market value
(2) = Liabilities are stated at principal only
(3) = Primary Beneficiary Designation is spouse. Contingent beneficiary is children in equal percentages
(4) = FMV of Land is $125,000. Cost basis is $370,000
(5) = FMV of Land is $200,000.
1) The Gross Estate, Probate Estate, the Marital Deduction and the FMV of Wife's Inherited Asset Calculations for John:
FMV of Mary's
FMV Gross Marital Inherited
Property at DOD Title Probate Estate Deduction Assets
Life Insurance $ 4,000,000 H 104,000 2,000,000 2,000,000 4,000,000
Cash & Checking 5,000 JT 130 2,500 2,500 5,000
Savings Account 945,000 JT 24,570 472,500 472,500 945,000
Certificate of Deposits 180,000 H 4,680 180,000 180,000 180,000
Stock Portfolio 940,000 JT 24,440 470,000 470,000 940,000
Mutual Fund Portfolio 2,907,682 H 75,600 2,907,682 2,907,682 2,907,682
Installment Receivable 216,810 H 5,637 - - -
401(k) Account 1,054,540 H 27,418 1,054,540 1,054,540 1,054,540
Annuity Policy 72,000 H 1,872 72,000 72,000 72,000
Primary Residence 900,000 JT 23,400 450,000 450,000 900,000
Vacation Home 750,000 H 19,500 750,000 750,000 750,000
Auto - Chevy SUV 35,000 H 910 35,000 35,000 35,000
Furniture & Personal Property 150,000 JT 3,900 75,000 75,000 150,000
2015 Sea Ray 24" Boat & Trailer 95,000 H 2,470 95,000 95,000 95,000
1918 Inverted Jenny Stamp 725,000 H 18,850 725,000 725,000 725,000
Totals $ 12,976,032 337,377 9,289,222 9,289,222 12,759,222
2) The Adjusted Gross Estate, Tentative Tax Base and Federal Estate Tax Liability Calculations for John: Taxable Tax
Tax Rate Schedule Rate Amount Liability
Gross Estate $9,289,222
Less: Administration Expense (150,000) $0 - $10,000 18% 0 0
Less: Burial Expense (25,000) $10,000 - $20,000 20% 0 0
Less: Casualty Losses - $20,000 - $40,000 22% 0 0
Less: Debts (14,708) $40,000 - $60,000 24% 0 0
Adjusted Gross Estate 9,099,514 $60,000 - $80,000 26% 0 0
Less: Marital Deduction (9,099,514) $80,000 - $100,000 28% 0 0
Less: Charitable Deduction - $100,000 - $150,000 30% 0 0
Taxable Estate - $150,000 - $250,000 32% 0 0
Add: Adjusted Taxable Gifts - $250,000 - $500,000 34% 0 0
Tentative Tax Base $0 $500,000 - $750,000 37% 0 0
$750,000 - $1,000,000 39% 0 0
Tentative Tax $0 $1,000,000 + 40% 0 0
Less: Gift Tax Paid -
Less: Unified Credit 0 TOTALS 0 0
Federal Estate Tax Liability $0
3) Calculate the new basis for the following selected assets for Mary on the assets received from John:
FMV Wife's New
at DOD Basis
Stock Portfolio 940,000 960,000
Installment Receivable - -
401(k) Plan 105,000 50,000
Annuity Policy 25,000 72,000
Primary Residence 900,000 370,000
4) The Gross Estate, Probate Estate, the Marital Deduction and the FMV of Husband's Inherited Asset Calculations for Mary:
FMV of John's
FMV Gross Marital Inherited
Property at DOD Title Probate Estate Deduction Assets
Life Insurance $ 400,000 W 10,400 200,000 200,000 400,000
Cash & Checking 5,000 JT 130 2,500 2,500 5,000
Savings Account 945,000 JT 24,570 472,500 472,500 945,000
Cash Value of Universal Life Insurance #2 155,000 W 4,030 - - 155,000
Stock Portfolio 940,000 JT 24,440 470,000 470,000 940,000
401(k) Account 105,000 W 2,730 105,000 105,000 105,000
Primary Residence 900,000 JT 23,400 450,000 450,000 900,000
Auto - Chevy Automobile 20,000 W 520 20,000 20,000 20,000
Furniture & Personal Property 150,000 JT 3,900 75,000 75,000 150,000
Gross Estate $ 3,620,000 94,120 1,795,000 1,795,000 3,620,000
5) The Adjusted Gross Estate, Tentative Tax Base and Federal Estate Tax Liability Calculations for Mary:
Gross Estate $1,795,000 Taxable Tax
Less: Administration Expense (1,500,000) Tax Rate Schedule Rate Amount Liability
Less: Burial Expense (25,000)
Less: Casualty Losses - $0 - $10,000 18% 0 0
Less: Debts 14,708 $10,000 - $20,000 20% 0 0
Adjusted Gross Estate 284,708 $20,000 - $40,000 22% 0 0
Less: Marital Deduction (284,708) $40,000 - $60,000 24% 0 0
Less: Charitable Deduction - $60,000 - $80,000 26% 0 0
Taxable Estate - $80,000 - $100,000 28% 0 0
Add: Adjusted Taxable Gifts $100,000 - $150,000 30% 0 0
Tentative Tax Base - $150,000 - $250,000 32% 0 0
$250,000 - $500,000 34% 0 0
Tentative Tax - $500,000 - $750,000 37% 0 0
Less: Unified Credit - $750,000 - $1,000,000 39% 0 0
Federal Estate Tax Liability - $1,000,000 + 40% 0 0
TOTALS 0 0
6) FMV Husband's
at DOD New Basis
Stock Portfolio 940,000 960,000
401(k) Plan 1,054,540 605,000
Primary Residence 900,000 370,000
For questions 7 -9, highlight the answer or delete the other three choices.
7) John and Mary would like to fund a trust that would receive an income tax deduction for charitable gifting. They want the trust to provide a fixed payment
for each spouse for the rest of their lives with the remainder passing to charity upon their deaths. Which one of the following gifting techniques would
accomplish their goals?
(a) - A charitable gift annuity
(b) - A charitable lead annuity trust
(c) - A charitable remainder annuity trust
(d) - A grantor retained annuity trust
8) After meeting with an estate planning attorney, John has decided to create two testamentary trust through his will. One trust will distribute all income
annually to Mary and give her the right to appoint trust property during her lifetime or by will at death. The other trust, funded with an exemption
equivalent amount, directs the trustee to pay trust principal and income to Mary for health, education, maintenance or support. Following Mary's death,
trust assets will pass to the sons per the terms of the trust. What selection below will accomplish John's goals?
(a) - A QTIP trust and a power of appointment trust
(b) - A bypass trust and a QTIP trust
(c) - A bypass trust and a power of appointment trust
(d) - A QTIP trust and an estate marital trust
9) John and Mary have a combined gross estate of over $30 million and are in need of estate tax minimization strategies. Which estate planning techniques
should the couple consider to reduce the taxable amount of their estates?
(a) - Marital deductions and portability
(b) - GRITs and preferred stock recapitalization
(c) - Bypass trusts and estate equalization
(d) - QDOT trusts and disclaimer provisions in wills