Microsoft Word - BHMH2144 assignment XXXXXXXXXXS2.docx
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The Hong Kong Polytechnic University
Hong Kong Community College
BHMH2144 Principles of Financial Planning
Semester TWO, XXXXXXXXXX
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 ma
ied 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 designe
Employment history European garment manufacturer
Monthly salary $40,000 (net after employee’s MPF contribution)
Keith and Kathy have been ma
ied 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 ma
ied, 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
ange 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.
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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 a
oad. However, after the birth of Kristy, they have
educed 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 cu
ently 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 ma
iage 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 a
anged 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.
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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
Cu
ent account 40,000 Cu
ent 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 cu
ent 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
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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
Cu
ent account Non-interest bearing
Expected salary increment of the couple Average 3% p.a. over remaining working life
expectancy
Expected overseas tertiary education fee Cu
ent $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
ate minus 2.25%”, cu
ently at 2.15%
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Table 5 – Information on Cu
ent Mutual Funds
Cumulated return
Type Asset class Cu
ency 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
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Recommendation section 10
Closing section 5
End of Assignment 2