Case 1

The Assessment Year would be 2018/19. Notes on computation of Salaries Tax / Personal Assessment are attached.

May and Peter, both are 32, have been married for 4 years. Peter, a sale manager in an international retail store at a monthly salary of $28,000 and monthly commission of $6000. May is a full-time clerk of a trading company with a monthly salary of $18000. They only make mandatory contributions to their MPF schemes.

Currently, they have no children but plan to have a baby next year, after giving birth May will not work for several years. They presently rent an apartment in Yuen Long for $13,000 inclusive per month, but they would like to purchase a flat before having a baby. The familys other monthly expenses total at $16,000. Besides the aforementioned expenses, Peter gives his parents (aged 64 and 58) $4,000 allowance monthly while Marys parents (aged 62 and 56) are living with them. Both Peters and Mays employers provided basic medical insurance.

Both Peter and May purchased a whole life insurance for each other. The beneficiary of Peters life insurance is May; while the beneficiary of Mays life insurance is Peter. The insured amount of Peter is $3,000,000 while the insured amount of May is $1,000,000. Currently they have no will. They appreciate the importance of such estate planning tool, especially when they have a baby.

Peter and May current have $1,200,000 in their bank account, they do not have much investment experiences. They plan to use a major portion of this cash for down payment for a flat of $4,500,000. Eric and Mary plan to use another, relatively smaller, portion of this cash for investment.

Question 1 (30 marks)

1a.) If Peter and May purchased the flat worth $4,500,000, with a 20% down payment and the mortgage would be for 30 years, how much would be the initial monthly payment if the interest rate is at HIBOR +1% and the HIBOR is fixed at 1.4%? (6 marks)

1b.) What would you advise Peter and May on insurance and investment aspects? (12 marks)

1c.) If Peter and May consider buying an investment-linked insurance policy with annual premium payment of $50,000 for 30 years, how much would be the maturity value after 30 years if the expected rate of return is assumed to be 9% p.a.? (6 marks)

1d.) If Peter died today, how much would May get from Peters life insurance? Would that be enough for her and the family? Explain why. (6 marks)