Ouyestion 1 (10 marks) (a) Identify and explain the type of life insurance (term or whole life) that is the most suitable for the following scenarios respectively: (i) Ken, aged 25, is a finance administrator with monthly salary of $20,000. He is the only son of his parent, who has been retired for five vears due to chronic illnesses. Ken needs to contribute 40% of his income for supporting the regular spendings of the family. Therefore, he plans to buy the life insurance to protect his parent. He has good track record in stock investment by earning over 20% investment return in the past five vears. (1) Judy, aged 40, is married with two children (aged 12 and 10). She is owner of small business with stable profit over vears. She does not have much investiment experience as she is dedicated to the operation of the company. Therefore, she plans to buy the life insurance with guaranteed death benefit and investment element to finance the children spendings or transfer the wealth to them in case of premature death. Besides, she prefers steady premium for budgeting her expenses. (Total word limit: 200) (8 marks) (b) Peter and Ivy are couple, both aged 35 and 30, respectively. in good health. Three years ago. their son was born. Ivy quitted her job to take care the child. She plans to be housewife until her son reaches 18 vears old. Currently Peter earns $48,000 per month. They own a home with a mortgage balance of $1.000,000, an outstanding car loan of $80,000, and a home improvement loan of $50,000. They also anticipate that the funeral cost for each person will be approximately $60,000. Calculate the total insurance needed for Peter using Easy method. (2 marks) Quecstion 2 (12 marks) Johnny is renting a 2-bedroom apartment with $20.000 per month. He is negotiating with existing landlord for buying the apartment at market value of $5,000,000 with 30% downpayment. The landlord is paying $2.000 management fee per month and $3,000 government rate per quarter. The maintenance cost is 5% of rental income. ABC Bank offers a HIBOR-based 30-year mortgage plan. The current HIBOR rate is 4.0%, and the current Prime rate is 6.0%. The mortgage plan calculates the rate as H+1%, capped at P1.5%. The monthly mortgage payment per $1,000 borrowed is shown as below: Mortgage Rate (%) 30 Years 3477 35.07 $5.37 $5.68 $6.00 He has an annual income of $720,000 and a personal monthly loan payment of $5.000. Additionally. his monthly expenses for utilities, groceries, and entertainment amount to $8,000, and he has an accumulated emergency fund of $90,000. Guidelines on mortgage payment to monthly gross income: 33% for PITI (Principal, interest, taxes and insurance) 38% for PITI plus other debt payments (a) Calculate the monthly mortgage payment. (4 marks) (b) Explain whether the mortgage application will be approved by ABC Bank. Show vour calculations. (4 marks) (c) Johnny wants to minimize the monthly budget spent on accommodation. Explain whether Johnny should buy the existing apartment or keep renting it. Show vour calculations. (4 marks) Question J (14 marks) (a) John is a 35-year-old professional working as a sofiware engineer in a reputable technological firm for five years and has steadily progressed in his career. His job is in a secure industry with low unemployment, and the demand for his skills is high. John's credit report reflects a solid history of responsible credit usage, with timely payments on his credit cards, student loans, and auto loan. He wants to borrow $200,000 from bank to renovate his home, which was purchased recently. His monthly take-home pay is $50,000, and he has $15,000 monthly mortgage payment and $1.000 monthly repayment on personal loan. John's personal balance sheet is shown as below: Assets 5 Cash on hand 100,000 Market value of main residence 4,000,000 Short-term mutual funds 20,000 HKSAR green bond due in 2026 30,000 Liabilities Mortgage loan balance on main residence 2,800,000 Personal loan 50,000 2,850,000 Evaluate John's standing in relation to each of the Five Cs of Credit. (Word limit: 250) {10 marks) (b) You are considering buying either of these two 4-seater cars: (1) Tesla brand-new electric car manufactured in 2024 sold by the original manufacturer or (2) Tovota petrol car manufactured in 2012 with 80,000 miles used, sold by the local car dealer. Describe the trade-off you face when you make the purchase decision. (Word limit: 100) (4 marks) Question 4 (14 marks) Karen and Ken were injured in the same traffic accident last month. As a result, they needed a major surgery and were admitted to a hospital. The medical bills of each person included: HK$900 daily for a 10-day hospital stay HK$30,000 as the surgeon's fee HK$8,000 for the anaesthetist's fee HK$4.000 for the operation theatre fee Four outpatient follow-up visits of HK$1,300 each. Karen purchased medical insurance from Company A with the following terms: Coverages Maximum benefits per disability (HK$) Maximum limit per day: $1,050 per day Maximum no. of day: 120 days Complex Major Intermediate Minor $35,250 $28.500 $18.150 Anesthetist's fee Pre- and post- hospitalisation outpatient visits Maximum number of visits: 5 visits Co-payment per visit: $200 Maximum 35% of the paid benefit of Surgical fees $13.000 Maximum limit per day: $650 per day Hospital cash Maximum no. of day: 60 days Ken purchased medical insurance from Company B with the following terms: Deductible: $5,000 * 80/20 coinsurance Stop-loss amount: $10,000 (a) Calculate the total dollar amount paid by the Company A and Company B respectively. Show your workings. (11 marks) (b) Indicate how the deductible, coinsurance and stop-loss amount can be adjusted respectively so that Ken can pay lesser insurance premium. (Word limit: 30 words)