Question
Time Value of Money in Personal Finance Mr. Haris, 32 years and Mrs Tini aged 30 years has been married for 5 years now. They
Time Value of Money in Personal Finance
Mr. Haris, 32 years and Mrs Tini aged 30 years has been married for 5
years now. They have two kids, Arif age 4 and Amira, 1 year. The spouse
is planning to send their kids to further their study to a local university
after completing tertiary education at the age of 18. Taking into
consideration the inflation rate, education cost for the next 14 years is
estimated to be amounting RM90,000 which will include the education fee
and living expenses for a 4 years study period. This cost will increase at
the rate of 2 percent a year onwards.
The spouse has taken an insurance policy for both of the kids starting this
year. Premium payment for the policy is RM3,360 yearly for Arif and
RM3,000 yearly for Amira. This policy will give an expected return of 5.0
percent annually and will mature when the kids reach 18.
1. Calculate the value of the insurance policies for both of the children
upon maturity. (10 marks)
2. How much surplus or deficit the value in (1) as compared to the
cost of education for each of the children. (10 marks)
3. How much monthly the family should invest for each children if it is
to be invested in a unit trust fund that will give a 6 percent in return
to cover the amount in (2)? (10 marks)
4. If the family decide to cancel the insurance, how much lump sum
money need to be saved today to achieve the education objective
for each of the children if it to be invested in the same unit trust
fund in (3)?. (10 marks)
5. If the family plan to achieve the education fund in 8 year, how much
rate of return should they look for in the unit trust fund?. (10 marks)
(Draw the time line in all of your solution)
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