Sue and Tom Wright are assistant professors at the local university. They each earn about $40,000 a year after taxes. Sue is 37 years old and Tom is 35 years old. Their two children, Mike and Karen, are 13 and 11 years old. If one of them were to die, they estimate that the remaining family members would need about 75% of the current combined income. pay to maintain their current standard of living while children are still dependent. This does not include the extra $50 per month in child care costs that would be necessary in a single-parent household. They estimate that survivor benefits would total about $1,000 per month in child support. Both Tom and Sue are savvy investors. Historically, their investment portfolio's average after-tax returns have exceeded the rate of inflation by around 3%. ASSUME THEIR REAL RATE OF RETURN = 4% SO THEY EARN 7% ON THEIR INVESTMENTS.1. If Sue Wright were to die today, how much would the Wrights need in the family maintenance fund? Use the “needs approach” and explain the reasons for your calculations.2. Suppose the Wrights discover that Tom and Sue both have a life insurance coverage gap of $50,000. Outline the steps in order that the Wrights should take to seek protection to close this gap? Solution: Question #1: Calculation of maintenance requirement Survivor's monthly expenses = [(75% * $80,000)/12] + $50  Survivor's monthly expenses = ($60,000/12) + $50  Survivor's monthly expenses = $5,000 + $50 Survivor's monthly expenses = $5,050 Survivor's monthly net salary = $40,000 / 12 Survivor's monthly salary = $3,333.33 Survivor's total contribution = $3,333.33 + Monthly Survivor Benefit = $1,000 Total Survivor Contribution = $3,333.33 + $1,000 Total Survivor Contribution = $4,333.33 Monthly Maintenance Requirement = Monthly Survivor Expenses Survivor - Total Survivor Contribution Monthly Maintenance Requirement = $5,050 - $4,333.33 Monthly Maintenance Requirement = $716.67 Annual Maintenance Requirement = Monthly Maintenance Requirement x 12 Months Requirement annual maintenance requirement = $716.67 x 12 Annual maintenance requirement = $8,600.04 Survivor contributions would equate to a monthly take-home salary of $40,000/12 and survivor benefits of $1,000. The remaining calculations are contained in the following spreadsheet: Survivor's Monthly Expenses $5,050.00 Survivor's Monthly Net Pay $3,333.33 Survivor's Monthly Benefits $1,000.00 TOTAL CONTRIBUTION PER SURVIVOR - $4,333.33 Monthly maintenance requirement $716.67 Calculate maintenance fund amount x 12 Annual maintenance requirement $8,600.04 Multiply by annuity factor (7 years at 4%) x 8.