Both Mary and Peter are 32 years old. They will get married soon, but they have no plans to have children at the moment. They both live with their parents now. Their parents are retired and are in relatively good health, expected to live for another 30 years. Mary and Peter plan to retire at the age of 65.

Information about Peter

Peter is the only child from a small family and his parents are financially dependent on him. Peter provides them with $8,000 every month to support their living.

Peter works as a marketing manager in an international firm. He joined the company 7 years ago and he earns a monthly salary of $40,000. Every month, Peter spends 1,000 on transport, $1,500 on meals, $800 on entertainment and $3,000 as necessary personal expenses. He is currently covered by a group medical insurance policy, which entitles him to claim reimbursement of medical expenses up to 80% of the total expenses incurred.

Peters MPF account shows a current balance of $210,000. The following table shows the performances of different Funds under his companys MPF Scheme portfolio during last year:

	Annualized Average Return	Benchmark Index	Annualized Standard Deviation	Beta	Peters MPF Portfolio Weighting
Apple Fund	33.6%	28.2%	16.9%	1.2	25%
Orange Fund	21.2%	28.7%	18.2%	1.1	25%
Green Fund	8.8%	11%	6.2%	0.9	30%
Blue Fund	-3.5%	0.8%	2.2%	0.9	20%

Information about Mary

Mary works as a designer in a fashion company, earning a monthly salary of $35,000. Her employer provides her with a group medical insurance policy and a $1,000,000 group life insurance policy under which she has assigned Peter as the beneficiary.

Each month, Mary takes $7,000 home to support her father. Mary spends $1,000 on transport, $800 on meals, $500 on entertainment and $2,500 as necessary personal expenses. Her mandatory MPF contribution is $18,000 each year.

Others

They bought a small residential flat 3 years ago in their names. The mortgage loan was arranged with XYZ bank, with a loan amount of 4.0 millions, a repayment term of 25 years. The mortgage interest rate is 6% p.a. The flat has been let out at a monthly rent that is able to cover the mortgage payment. The tenancy agreement will expire soon and they will move into the flat after they are married.

Neither Mary nor Peter has purchased individual life insurance policy. However, Marys employer has provided employee family group insurance with base protection.

Assumptions:

- risk free rate is 3.5%

- all interest rates are compounded monthly unless stated otherwise.

1. Which one of the following is likely to be the short term financial goal of Mary and Peter?

a. Develop a saving plan for home purchase.

b. Develop an investment plan, if appropriate, for change in life situation.

c. Set up an education fund for their future child.

d. Develop a plan for retirement

2. Ignoring salaries tax liability, what is the current estimated monthly discretionary income of Mary after deducting all her expense and committed financial obligations?

3. What is the required monthly mortgage payment to the bank on the mortgage loan of the residential flat owned by Mary and Peter? (to the nearest dollar)

4. What is the expected return of the Peters MFP portfolio if based on portfolio weighting?

5. According to the portfolio management theory, Peter would like to know a securitys systematic risk is proportional to:

6. If Peter is going to borrow a short term loan from a bank at APR 15%, what is the EAR of the loan if Peter wants to make quarterly repayment?

Answer rating: 100% (QA)

1 The shortterm financial goal of Mary and Peter is likely to be b Develop an investment plan if appropriate for a change in life situation Since they have no immediate plans to have children and are ... View the full answer