Question 1

Andy Cheah (aged 39) is married to Alison Wong (aged 36) with 3 children name Aston Cheah (aged 10), Ashley Cheah (aged 7) and Abby Cheah (aged 2) Since joining the workforce, Andy Cheah accumulated RM326,510, while Alison Wong able to accumulate RM266,820 into their Employee Pension Scheme (EPF).

Over the years, they have saved and accumulated some wealth in PBank. At as today, they only successful accumulate RM129,500 in the fixed deposit, RM156,700 in the saving account and RM31,630 in the current account.

Andy owns the following assets: a double story house in Ara Damansara worth RM980,000; a condominium in Bukit Jalil worth RM570,000 for investment purpose; a Mercedes A200 worth RM230,000; a Madza CX8 worth RM186,000. His liabilities are a housing loan on his double story house outstanding at RM715,000 and second housing loan on the Condominium at RM550,000; a hire purchase loan on his Mercedes A200 at RM198,000, second loan on the Mazda CX8 at RM175,000.

He has stocks on Bursa Malaysia worth RM235,000; unit trust worth RM162,000; group life insurance provided by is employer with sum assured of RM200,000; and a personal life insurance policy with a Face Value of RM1,000,000.

Currently, all of their children are taken care by Alison Wongs parents who lived nearby. Andy believes in providing the best education for his kids. He plans to send all his kids to further study until tertiary education. He expected his kids will be furthering their 3 years degree course, started at their age 18 years old. Due to Andy and family currently staying at Ara Damansara Area, so they hope all kids can study at Inti University Subang Jaya. The degree course for Inti University Subang Jaya is approximately RM200,000 for 3 years including living expenses. After discussion with Andy, he understands the important of risk management. He decided to upgrade his current insurance policy. Upon his death, Andy would like to provide for his wife RM120,000 every year till she is 75 years old (begin once he death). In addition, he would like to set aside RM80,000 for final expenses (funeral and bereavement expenses) and RM500,000 as an emergency fund. Compute the following (Assume a discount rate of 4.25% per annum and that income is received at the end of the period.

(a) Calculate the net worth of Andy Cheah. (5 marks)

(b) Calculate the capital needed to generate regular income needs to be left to Alison Wong till she reaches age 75 using capital liquidation method. (5 marks)

(c) Calculate the lump sum capital needs. (Liabilities and other needs to be settled upon Andys death) (5 marks)

(d) Calculate the value of income-producing assets. (Asset that can be liquidated for cash upon Andys death) (5 marks)

(e) Calculate the shortfall required for the familys financial needs. (Additional amount of life insurance that will provide an immediate capital sum of money in the event of Andys sudden death) (5 marks) (Total: 25 marks)