Instructions1. Submit your solution document in the form of a single MS Word file on or before thecut-off date shown above.2. You will need to indicate clearly on the front page your name, student ID, course titleand assignment number.3. The websites will help facilitate your research. However, you will be penalized ifyou simply cut & paste information from these websites in your assignment___________________________________________________________________________This TMA assesses the students ability to: Describe the concept of time value of money. Translate key elements in their investment portfolio and retirement plan. Indicate the differences between various investment instruments and insurance plansand decide on what is most suitable.CASE STUDYThe information provided in this case study will be used at various parts of this TMA.Belle LimDivorced, Aged 42INTRODUCTIONBelle, a Singaporean, was married to Sherlock. Together, they have two children Kenji andKaren aged 16 and 14 respectively.EMPLOYMENTBelle is a Marketing Director with a multinational corporation and in the course of her worktravels one and a half weeks of every monthINCOME AND EXPENSESThe following represents the inflow and outflow figures for Family the period 1.1.2013 to31.12.2013 :-Summary of Annual Inflows TotalAnnual Salary (including Bonus and Employees CPF) $150,000 Employers CPF contribution $13,600 Interest from Savings $210 Interest from Fixed Deposit $1,100 The total family expenses incurred by Belle is shown below:Savings$6,000.00 Fixed OutflowsCPF for house mortgage*$??,???.??Cash for house mortgage* $??,???.??Car loan repayment$0.00 Insurance premium$17,963.00 Variable OutflowsTax $4,500.00 Food$7,200.00 Transportation$5,400.00 Grooming$1,200.00 Entertainment/Vacation $5,000.00 Medical/Dental $2,400.00 Utilities/Household$6,600.00 Gifts$2,500.00 Parental Support$12,000.00 Miscellaneous $4,500.00 (*Amounts used from CPF and Cash to pay for the house mortgages are not given.)ASSETS AND LIABILITIESThe following information pertains to assets and liabilities for the family as at 31.12.2013 :-1. Belles CPF balances in her Ordinary, Special and Medisave accounts amounts to a$121,000, $25,000 and $35,000 respectively.2. With investments, Belle is risk adverse. This is because she made huge losses duringthe last global financial crisis, having been advised to invest in structured deposits. Asa result of this, she holds about $60,000 in a savings account, and $110,000 in a oneyearfixed deposit. Current interest rates applicable to both accounts are 0.35% and1.00% respectively.3. Belle does not have any investments in stocks and shares, or in unit trust.4. The house that Belle is now living in with her children was purchased 7 years agowith her then husband, Sherlock. The purchase price was $1,300,000, and the couplepaid $500,000 in cash and CPF, and took up a loan for the balance. As at 31December 2013,??£ the house was valued at $1,700,000??£ outstanding balance on the loan was $605,230??£ The interest rate on the 25 year loan has remained unchanged at 1.5% per annum,monthly rest, resulting in a monthly instalment of $3,199. Belle uses all theirmonthly CPF Ordinary Account contribution1 to pay for the instalment, and topsup the balance with cash.5. During a recent holiday to Europe with her children, Belle charged $6,500 to hercredit card. She has yet to repay the credit card company.6. Belle does not own a car.OTHER INFORMATION1. Belle was legally divorced from Sherlock 4 years ago. Terms of the divorce included:a. Sherlock giving up custody of the two children without alimonyb. Sherlock giving up legal rights to their matrimonial home. Belle continues withthe mortgage installments on the home????????????????????________________________________________________1 The student will need to check with the relevant website what the contribution level for CPFOrdinary Account will be.2. Kenji has been giving tuition to group of 6 Primary School students at a rate of $15per student per hour. His classes are 2 hours per session, and he conducts sessionsseparately for English, Maths and Science (a total of three sessions per week). Heteaches from January to mid-November (excluding June), giving a grand total of 42weeks of classes.3. Belle recently detected lumps on her breast. She has made an appointment with anOncologist.4. Every month, Belle given a total allowance $1,000 to her parents for their expenses.5. Family Survival NeedsBelle aims to provide for her familty until her youngest child is 26 years old.Belle has put in place a mortgage reducing term insurance to cover for a value of$760,000 for the next 18 years at a discount rate of 2% p.a. (feature of the policy isthat it pays the outstanding balance of the loan at the time of the claim). Her mortgageis also paid for in the event of Critical Illness or Total and Permanent Disability.Premium for the mortgage protection plan is $3,359p.a.Having discovered her breast lumps, Belle decides to quickly buy a $1,500,000 Termplan with $600,000 Critical Illness benefits to provide for her children in the event shecontracts and/or dies from cancer. Her term plan which covers her until age 99 costsher $14,604 each year. For fear of being uninsurable, she does not reveal in themedical questionaire in the insurance application forms that she discovered breastlumps and is awaiting a medical examination. Her policy has been approved by theinsurer.About 8 years ago, Belle bought a $150,000 5-year limited-pay whole life plan. Theplan covers her for $50,000 Critical Illness. The annual premium for her plan was$19,500p.a. .The Cash Value of her plan is $48,750.6. Education NeedsBelle would like to prepare for the eventuality that Kenji and Karen to go toUniversity at ages 21 and 19 respectively. Having been given the opportunity to studyin Australia herself, Belle would like to give her children the rewarding experienceof studying overseas. She expects that a years tuition and accommodation would costabout S$25,000 today. From a recent magazine article on overseas education, Belleagrees that the inflation rate is about 6%. She is prepared to finance a 4-year coursefor each of her children.7. Belles recent discovery of breast lumps Belle has caused her to reflect on the matterof final expenses. Having done some research, Belle would like to provide for thefollowing final expenses :-Funeral Expenses $20,000 Probate Costs $38,298 8. Belle has also been advised to keep aside for Emergency expenses an amount equal to3 times her current monthly gross income. This will allow her children to have someimmediate money to live on in the event of her demise until such a time her estate isexecuted.Question 1 (20 marks)Prepare just for Belle the following:(a) Cash Flow Statement for the period 1 Jan 2013 to 31 December 2013.(10 marks)(b) Net Worth Statement as at 31 December 2013.(10 marks)Question 2 (38 marks)(a) Using the information given in the case study above, determine Bellesinsurance requirement using the CPF Insurance Estimator found athttps://www.cpf.gov.sg/cpf_trans/ssl/financial_model/insurance_estimator/ie1.aspAssume in your study that under Dependants Needs:i. Household expenses (including Parental Support) will be reduced by 30% in theevent of Belles death. Round down the result to the nearest whole number.ii. Expected returns and Inflation are 2% and 3.5% respectivelyIn your answer, insert a detailed printout of your results all the headings and their items mustbe shown (a sample is shown below)(18 marks)(b) Insurance is an important risk management tool for personal financialplanning, and insurers need to be able to make a proper and unbiasedevaluation of the risk they underwrite. To do this, insurers depend on theprinciple of Uberrimae Fidei. Please read the two references given below:1. Your Guide to Life Insurance found with The Life InsuranceAssociation (LIA) athttp://www.lia.org.sg/files/document_holder/Consumer_Guides/YGTLI_Eng%28Oct07%29.pdf,2. Section 25 (5) of the Life Insurance Act (Chap 142)No Singapore insurer shall use, in the course of carrying on insurancebusiness in Singapore, a form of proposal which does not have prominentlydisplayed therein a warning that if a proposer does not fully and faithfullygive the facts as he knows them or ought to know them, he may receivenothing from the policy.i. What is meant by Uberimmae Fidei, especially in the context of insurancecontracts? Refer to Investopedia.(6 marks)ii. Why is Uberrimae Fidei important to the underwriting and issuing of contracts ofinsurance? What will be the impact of non-disclosure of material facts.(6 marks)iii. If Belle were to die of cancer, comment on which of Belles insurance policieswill be paid out, and if not, why not. (8 marks)Question 3 (20 marks)(a) Belle would like advice on how she can contribute to SRS in 2014. How and in whatamount can she contribute towards Supplementary Retirement Scheme (SRS) Contribution,when would she would be able to claim relief for the contribution. Give her your advicewith reasons.(10 marks)(b) From the SRS Booklet (dated 18 February 2011) downloaded from the Ministry of Financewebsite, what type of investments are allowed under the SRS.(5 marks)(c) What are the criteria for, and total amount of Qualifying Child Relief Belle can claim for theYear of Assessment 2014? Show working to justify your answers.(5 marks)Question 4 (22 marks)(a) Discuss with Belle how she will be able to give her assets to her family (including her parents)in the event she passes on.(10 marks)(b) In the event that Belle passes on without making any formal arrangement (as discussed in (a)above) to pass on her estate, how will her estate then be distributed. Explain with relevantreferences.(12 marks)
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