Question 1

(50 marks)

Bob To, 35 years old, has recently finished his Master of Wealth Management program and is employed in an international corporation with decent salary. Through his education, he understands the importance of financial planning, and that investment should be balanced between risk and return. After thinking carefully, he decides to invest $20,000 per year in each of two different funds with different risk/reward profiles. When he retires in 30 years, the accumulated wealth will be put into a single fund (Fund F) which is expected to generate 4% return. He plans to withdraw equal amount of money from this account annually for his retirement expenses for 20 years.

Bob often receives advertisement and publications from his bank offering information about personal investment and financial planning. A brochure published by the bank shows a number of mutual funds managed by the bank with the following information.

Fund type	Five year historical annual return
Fund A (Bond fund)	5%
Fund B (Balance fund)	6%
Fund C (Growth-and-Income fund)	7%
Fund D (Equity fund)	8%
Fund E (Global fund)	9%
Fund F	4%

He has approached you, a relationship manager in the bank, for advice.

Assume no other charges and taxes, and that all investments and withdrawals are made at the end of a year. Also assume that projected return is based on historical

return.

(a)	Critically illustrate the financial planning concerns of a complete set of financial plan for Bob. Assess how employee benefit fits into the financial planning framework.	(15 marks)
(b)	If Bob chooses Fund A and Fund D, forecast the expected value of his investment by the time he retires.	(5 marks)
(c)	Evaluate the amount he can withdraw each year from the account during his retirement period, assuming that he chooses the funds in part (b) and that he will leave nothing after 20 years.	(5 marks)
(d)	If he wants to withdraw $300,000 per year instead, determine how much he should invest in each of the two funds each year, assuming he invests in equal amount in these funds.	(5 marks)
(e)	Ignoring part (d), if he wants his investment to have $4,000,000 after 20 years of retirement (instead of leaving nothing as in part (c) ), while withdrawing the same amount per year as in part (c), work out the required value of his investment by the time he retires.	(5 marks)
(f)	Bob did not invest all his money in Fund E which has the highest potential return. Justify his rationales.	(5 marks)

(g)

Bobs mother, 55 years old, a typical risk-taker, is also interested to invest for her retirement. Discuss how her investment planning will be different from Bobs. Explain.

(10 marks)