Throughout this book, we will

Throughout this book, we will present a continuing narrative about Harry and Belinda Johnson. Following is a brief description of the lives of this couple.

Harry is 28 years old and graduated five years ago with a bachelor’s degree in interior design from a large Midwestern university near his hometown in Indiana. Since graduation Harry has been working in small interior design firm in Kansas City earning a salary of about $50,000.

Belinda is 27, has a degree in business administration from a university on the West Coast, and has been employed in a medium-size manufacturing firm in California for about five years. Harry and Belinda both worked on their schools’ student newspapers and met at a conference during their junior year in college.

After all these years they met again socially in January in Kansas City, Missouri where Belinda was visiting relatives and by chance she and Harry were at the same museum. After getting reacquainted they started dating and in only a matter of months Belinda got transferred from California to work in Kansas City and in June they got married. Belinda is now employed as a stockbroker earning about $77,000 annually.

After the wedding they moved into his small apartment. They will face many financial challenges over the next few decades as they buy their first home, decide on life insurance needs, begin a family, change jobs, and invest for retirement.

(a) Harry receives $3,000 in once a year interest income payments from a trust fund set up by his deceased father’s estate. The amount will never change until it runs out in 20 years. What will be the buying power of $3,000 in ten years if inflation rises at 3 percent a year? (Hint: Use Appendix A.2.)

(b) Belinda and Harry have discussed starting a family but decided to wait for perhaps five more years in order to get their careers moving along well and getting their personal finances solidly on the road to success. They also know that having children is expensive. The government’s figure is that the extra expense of a child would be about $16,000 a year through high school graduation. How much money will they likely cumulatively spend on a child over 18 years assuming a 3 percent inflation rate? (Hint: Use Appendix A.3.)

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