Write a personal financial planYou are required to write them an initial plan to address the above issues and recommend them which alternative is appropriate for them. It is expected to have basic quantitative analysis. The plan is expected to include as follows: Marks Format 5Introduction section 5Analysis and evaluation section including assumptions and quantitative calculations 15Recommendation section 10Closing section 5
Microsoft Word - BHMH2144 assignment 2 2019-20-S2.docx 1 The Hong Kong Polytechnic University Hong Kong Community College BHMH2144 Principles of Financial Planning Semester TWO, 2019-2020 Assignment 2 Instructions to students: This assignment should be completed individually. Words limit: The report must be TYPED and not more than THREE pages (not including cover and appendix, if any) in “Arial” font size 12, single line spacing and all margins at 1 inch. Submission deadline: 11:00, 23 April 2020 (Thursday). Submit your assignment via Moodle. Note that penalty will be imposed on late submission. (10% deducted if late within 2 hours, 20% for 2-6 hours, 30% for 6-12 hours, 50% for 12-24 hours and no marks after 24 hours) Save your file name as your student ID, for example, 18012428A.pdf State your name, student number and tutorial group on the front page of your assignment. Plagiarism will be treated seriously. NO Mark will be given for assignment that is found wholly or partly involved in plagiarism (no matter these assignments are from the original authors or from the plagiarists). Total: (40 marks) Introduction Clients: A dual income young married couple, Keith and Kathy Au, with a 1-year-old daughter. Personal Background Keith Au Age 26 Nationality Chinese Occupation Certified Public Accountant Employment history Local medium size accountancy firm for 5 years Monthly salary $55,000 (net after employee’s MPF contribution) Kathy Au Age 24 Nationality Chinese Occupation In-house fashion designer Employment history European garment manufacturer Monthly salary $40,000 (net after employee’s MPF contribution) Keith and Kathy have been married for 2 years and have a 1-year-old daughter, Kristy. Keith’s parents are well-off and live in the United States. When they married, Keith’s parents gave them a sum of $800,000 as a gift. The Au couple lives in a rented flat but wants to buy a flat in the price range of around $8 million in 4 years. They expect Keith’s parents will give them further sum of $600,000 as a gift as part of the down payment. 2 Their jobs are secure and stable even the economy may not be good in future. The couple does not wish to have another child, and wishes to send Kristy to complete her tertiary education overseas after finishing secondary school education in Hong Kong. Both Keith and Kathy enjoy taking vacations abroad. However, after the birth of Kristy, they have reduced their overseas travel to twice a year. They want to maintain this frequency and spend an average of $24,000 on each vacation per year. Other Information Investments The respective employers of Keith and Kathy have the same MPF providers. Although their MPF plans offer a variety of mutual funds ranging from aggressive growth funds to guaranteed funds, both Keith and Kathy currently have 100% invested in aggressive growth funds. For their own investment, it is surprised that they do not make any investment. Regarding the $800,000 marriage gift from Keith’s parents, they just simply placed into time deposit. They own 3 credit cards in total, each with outstanding balances. Insurance Only Keith’s employer provides a comprehensive medical insurance scheme that covers employees’ spouses and children. They each also maintain a term life insurance with a sum insured of $1 million and Keith has arranged comprehensive insurance cover on his car. Apart from the above, neither Keith nor Kathy has any other kind of insurance. Retirement The couple plans to retire at the age of 60. Estate Plan Keith and Kathy has each made a simple handwritten will leaving all probate assets to each other. Please also see the Appendix for further details in relation to the above. Advice Wanted Keith and Kathy Au wish to achieve their priority of purchasing their own home in as soon as possible. Their secondary financial goals are to provide for the education of their daughter. 3 Appendix Table 1 - Monthly Cashflow Statement of Keith and Kathy Au for the Year ended 31 December 2019 Cash inflows Salary – Keith (net after MPF contributions) $55,000 Salary – Kathy (net after MPF contributions) 40,000 Total cash inflows 95,000 Cash outflows Rent 23,000 Household expenses 14,000 Car expenses 13,000 Child care & Education 16,000 Entertainment 3,800 Vocation 3,000 Car insurance premium 800 Life insurance premium 400 Tax 600 Total cash outflows 74,600 Surplus 20,400 Table 2 – Balance Sheet of Keith and Kathy Au as of 31 December 2019 Assets $ Liabilities $ Cash & cash equivalents Current account 40,000 Current liabilities Savings 120,000 Credit card 1 (Keith) 8,500 3-month Time deposit 820,000 Credit card 2 (Kathy) 3,200 Total cash & cash equivalents 980,000 Credit card 3 (Kathy) 8,800 Total current liabilities 20,500 Invested assets Keith and Kathy’s MPF 492,000 Total liabilities 20,500 Total invested assets 492,000 Personal assets Private car 56,500 Furniture 23,600 Personal belongings 45,000 Total personal assets 125,100 Net worth 1,576,600 Total assets 1,597,100 Total liabilities and net worth 1,597,100 4 Table 3 – Insurance Information of Keith Au and Kathy Au Life insurance Insured Keith Policy owner Keith Beneficiary Kathy Sum insured $1,000,000 Cash value $0 Type of policy Term life Settlement options Lump-sum Annual premium $2,400 Life insurance Insured Kathy Policy owner Kathy Beneficiary Keith Sum insured $1,000,000 Cash value $0 Type of policy Term life Settlement options Lump-sum Annual premium $2,400 Group medical insurance Premium (N/A (paid by employer) Coverage Major medical with a $1,000,000 lifetime limit. Dental coverage is also provided. Deductible $500 per person (3 persons maximum) Family out-of-pocket limit $5,000 Car insurance Premium $800 total annual premium Cover Comprehensive (Year 2005 model, 4-doors, 2,500 cc) Deductible $1,000 Table 4 – Economic Information and Key Assumptions Average life expectancy Male: 84; Female: 87 Expected average inflation 3% p.a. Savings account 0.25% p.a. compounded monthly Time deposit account 1.5% p.a. compounded monthly Current account Non-interest bearing Expected salary increment of the couple Average 3% p.a. over remaining working life expectancy Expected overseas tertiary education fee Current $130,000 each year for UK Mortgage Maximum property value: $8,000,000 Loan to value: 80% Mortgage interest at a floating rate equals to “Prime rate minus 2.25%”, currently at 2.15% 5 Table 5 – Information on Current Mutual Funds Cumulated return Type Asset class Currency 1 yr 5 yrs ASEAN Growth Fund Equity HKD 4.17% 19.39% Asian Bond Fund Bond USD 10.29% 14.99% China High Yield Fund Bond USD 8.19% 12.33% Emerging, Europe, Middle, East and Africa Fund Equity HKD 15.66% 22.39% Global Health Care Fund Equity USD 14.23% 34.01% Global Infrastructure Fund Equity USD 8.80% 8.86% Greater China Fund Equity USD 12.43% 36.22% US Dollar Cash Fund Cash USD 1.85% 4.09% World Growth Fund Equity USD 14.11% 29.74% Required: You are required to write them an initial plan to address the above issues and recommend them which alternative is appropriate for them. It is expected to have basic quantitative analysis. The plan is expected to include as follows: Marks Format 5 Introduction section 5 Analysis and evaluation section including assumptions and quantitative calculations 15 Recommendation section 10 Closing section 5 End of Assignment 2