Situation A (Capital Liquidation Method) : Sam (aged 33) and his wife, Sarah (aged 30), have just purchased a new condominium in

Town X for 550,000.

- They plan to take a 80% mortgage loan of 440,000 for the next 35 years.

- Sam's assets: a Car (65,000) , stocks (180,000) , group insurance by his employer (400,000) and personal insurance with a face amount of (250,000).

- He has a hire purchase loan on the Car (40,000). Should he pre-decease Sarah, Sam plans to provide 36,000 per annum for Sarah till she reaches age 70. He would also like to create an Emergency Buffer fund of 50,000 and Final Expenses fund of 35,000.

Using the 'CAPITAL LIQUIDATION METHOD' , what is the amount of additional life insurance

that Sam needs to purchase. Assume a discount rate of 4% per annum and that income

is received at the end of the period.

Situation B (Capital Preservation Method) : In the example above; as life mortality is uncertain, Sam would like to provide for his

wife, Sarah, an income of 36,000 for an indefinite time period. Using the "CAPITAL

PRESERVATION METHOD" , what is the amount of additional life insurance that Sam needs

to purchase. Assume a discount rate of 4% per annum and that income is received at

the end of the period.