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you are required to write them an initial plan to address the above issues and recommend them which alternatives is appropraite for them. It is expected to have basic quantitative analysis.

Introduction Clients: A dual income young married couple, Keith and Kathy Au, with a 1-year-old daughter. Personal Background Keith Au Age Nationality Occupation Employment history Monthly salary a nd Chinese Certified Public Accountant Local medium size accountancy firm for 5 years $55,000 (net after employee's MPF contribution Kathy Au Age Nationality Occupation Employment history Monthly salary Chinese In-house fashion designer European garment manufacturer $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. 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 overcas after finishing secondary school education in Hong Kong Boch 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 cach 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, cach 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 S1 million and Keith has arranged comprehensive insurance cover on his ear. 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 cach 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. Appendix Table 1 - Monthly Cashflow Statement of Kelth and Kathy Au for the Year ended 31 December 2019 Cash inflows Salary-Keith (net after MPF contributions) Salary-Kathy (net after MPF contributions) Total cash inflows $55,000 40.000 95,000 Cash outflows Rent Household expenses Car expenses Child Care & Education Entertainment Vocation Car Insurance premium Life insurance premium 23.000 14,000 13,000 16,000 3.800 3.000 400 Total cash outflows 74.600 Surplus 20,400 Table 2 - Balance Sheet of Kelth and Kathy Au as of 31 December 2019 S labilities Assets Cash & cash equivalents Current account Savings 3-month Time deposit Total cash & cash equivalents 40,000 120,000 820,000 980,000 Current liabilities Credit card 1 (Keith) Credit card 2 (Kathy) Credit card 3 (Kathy) Total current liabilities 8.500 3.200 ROO 20,500 Invested assets Keith and Kathy's MPF Total invested assets 492,000 492.000 Total liabilities 20,500 Personal assets Private car Furniture Personal belongings Total personal assets 56,500 23,600 45,000 125,100 Net worth 1,576,600 Total assets 597.100 Total liabilities and net worth 1.597.100 Table 3 - Insurance Information of Keith Au and Kathy Au Life insurance Insured Policy owner Beneficiary Sum insured Cash value Type of policy Settlement options Annual premium Keith Keith Kathy $1,000,000 Term life Lump-sum $2,400 Life insurance Insured Policy owner Beneficiary Sum insured Cash value Type of policy Settlement options Annual premium Kathy Kathy Keith $1,000,000 SO Term life Lump-sum $2,400 Group medical insurance Premium Coverage (NA (paid by employer) Major medical with a $1,000,000 lifetime limit. Dental coverage is also provided 5500 per person (3 persons maximum) $5,000 Deductible Family out-of-pocket limit Car insurance Premium Cover Deductible $800 total annual premium Comprehensive (Year 2005 model, 4-doors, 2,500 cc) $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% pa. 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 Si30,000 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 2.2596", currently at 2.15% Table 5 - Information on Current Mutual Funds Asset class Equity Bond Bond Equity Currency HKD USD USD HKD 4.17% 10.29% Cumulated retur 1 yr 5 yrs 19.39% 14.99% 8.19% 15.66% 22.39% 12.31% Type ASEAN Growth Fund Asian Bond Fund China High Yield Fund Emerging, Europe, Middle East and Africa Fund Global Health Care Fund Global Infrastructure Fund Greater China Fund US Dollar Cash Fund World Growth Fund Equity Equity Equity Cash Equity USD USD USD USD USD 14.23% 8.80% 12.43% 1.85% 14.11% 34.01% 8,86% 36.2296 4,0996 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 Introduction section Analysis and evaluation section including assumptions and quantitative calculations Recommendation section Closing section End of Assignment 2