KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN

BBMF2113 PERSONAL FINANCIAL PLANNING

January 2022

Tutorial 1: Financial Planning Overview

1. People are commonly overwhelmed by the many influences on personal financial
decisions. What are the factors affecting financial planning?
The factors that affect financial planning are personal obstacles, lack of confront,
procrastination, ineffective communication, confusion in the financial services
environment, inflation and taxes, GDP, income.
Ans: Factors might include personal values, household situation, age, income level, marital status,
employment situation, and economic conditions.

2. Explain why it is important to set realistically attainable financial goals. Select one of
your personal financial goals and develop a brief financial plan for achieving it.
Financial goals are important because they maintain and improve the standard of living, it
also helps to control our spending to live well and helps to accumulate wealth.

Ans: • To provide direction in life, financial planning

3. Discuss why financial planning is important today more than 20 years ago.

Ans: 3. • You are going to live longer • You will spend more on healthcare. • To enjoy retirement • You
have more ways to spend your money • You travel a lot more • You will marry later and have children later
• Costs of raising children is higher • Your children will spend more time in university • Inflation • To pass
wealth to the next generation

4. What are the main components of personal financial planning?

-Cash flow Management
- Risk management and insurance planning
-Tax planning
-Investment planning
-Children education planning
-retirement planning
-estate planning
5. What types of risks are commonly associated with financial decisions? How can these
risks be evaluated and minimized to reduce personal and financial difficulties?
Ans: 5. Common risks are inflation risk, interest rates risk, personal risk, and liquidity risk. Risks can be
evaluated and minimized by obtaining information, comparing alternatives before making a decision, and
obtaining insurance

6. Linda is trying to decide whether to keep her money in a savings account or in a mutual
fund. What would you tell her to help her analyze her decision?

I would tell Linda to save 40% of her money in the savings account and invest the rest of
her money in the mutual funds.
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

Ans: 7. Suggested responses might mention gathering information, comparing alternatives, analyzing
risks, assessing personal goals, and contacting financial planning experts.

7. Explain why borrowers benefit more than lenders in times of high inflation.
Inflation allows borrowers to pay lenders back worth money worth less value than when it
was originally borrowed.

Ans: 8. Inflation can also adversely affect lenders of money. Unless an adequate interest rate is charged,
amounts repaid by borrowers in times of inflation have less buying power than the money they borrowed. If
you pay 10 percent interest on a loan and the inflation rate is 12 percent, the dollars you pay the lender have
lost buying power.

8. Bank Negara Malaysia has recently (7th May 2019) reduced the Overnight Policy Rate
(OPR) to 3%. Discuss the impact of this monetary policy changes in relation to personal
financial planning.
Ans: 9. When Gov reduced the OPR, interest rate will drop. With that, bank loan or bank FD rate will drop
too this will encourage ppl to withdraw their money from the bank to place in stock market. or buy property
due to low interest rate it also mean inflation coming, with that, unemployment rate will increase and some
of the businesses might close down.

9. Personal risk is the main factor of why financial planning so important. Discuss the
personal risk.
Ans: • Premature death of breadwinner • Permanent disability – “living death” • Health concerns – medical
& recuperative costs as well as possibility of losing job • Unemployment, loss of job, etc. • Dependents’
health concerns • Bankruptcy • High debt
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

Tutorial 2: Financial Statements and Time Value of Money

JUNE NG
STATEMENT OF NET WORTH AS AT 31 DECEMBER 2018
ASSETS RM LIABILITIES / NET RM
WORTH

Cash/ Cash Equivalents Current Liabilities

Savings account 40,000 Credit card 10,000
Insurance cash value 10,000
Long-Term Liabilities
Investment Assets Mortgage 600,000
Apartment 350,000 Car loan 15,000

Personal-Use Assets Net Worth 255,000

House 400,000
Car 80,000

TOTAL ASSETS 880,000 TOTAL LIABILITIES / 880,000

N.W.

JUNE NG
CASH FLOW STATEMENT FOR THE YEAR ENDING 31 DECEMBER 2018

RM RM
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

INFLOWS
Net Salary (net of Employee’s EPF Contribution & Tax) 132,000
Net Rental Income 12,000
TOTAL INFLOWS 144,000

FIXED OUTFLOWS
Life Insurance Premiums 6,000
Mortgage Payments 36,000
Car Loans Repayments 18,000
Maid’s Salary 12,000
Sub Total 72,000
VARIABLE OUTFLOWS
Food/ Groceries 25,000
Utilities 10,000
Children Education 12,000
Family Vacation 10,000
Others i.e. gifts, celebrations, etc 8,000
Sub Total 65,000
TOTAL OUTFLOWS 137,000

NET CASH FLOW 7,000

1. Based on the financial statements, compute June’s:

i. Basic Liquidity Ratio

=Cash and cash equivalent / monthly expenses
=RM50,000/(137,000/12)
=4.38 months
Healthy because experts recommend min should be 3-6 months as a benchmark.

ii. Debt-to-Asset Ratio

=Total debt/ total assets
=(RM625,000/RM880,000) x 100%
=71%
Unhealthy because experts recommend should be 0.5 or below as a benchmark.

iii. Debt Service Ratio

=Total Annual Loan Repayments/ Annual Take Home Pay
= (36,000+18,000)/144,000 x100%
=37.5%
Unhealthy because experts recommend a ratio of 35% or lower as a benchmark.

iv. Non-Mortgage Debt Service Ratio

=Total non-mortgage Loan Repayment/ Annual Take-Home Pay
= (18,000/144,000) x 100%
= 12.5%
Healthy because experts recommend 15% or lower as a benchmark.

v. Liquid-Assets-to-Net Worth Ratio

 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

=Liquid asset/ Net worth

=(50,000/255,000)x100%
=19.61%
Healthy because experts recommend a min of 15% as a benchmark.

vi. Savings Ratio

=Savings / Gross income
=(7,000/144,000)x100%
=4.68%
Healthy because experts recommends a min of 10% as a benchmark on top of EPF
savings.

vii. Net Investment Assets to Net Worth Ratio

=Net investment assets / net worth
=(RM350,000/RM255,000)x100%
=137%
Healthy because experts recommend 50% and above as a benchmark.

Comment on her ratios.

2. Kent wants to know how much to invest now, if the annual interest rate is 7%
compounded on a monthly basis. He wants to have RM50,000 in 10 years time.

PV=?
FV=RM50,000
i=7%
n=12*10=120
PV=RM24879.81

3. How long does it take for RM5,000 to grow into RM6,724.44 at 10% compounded
quarterly?

PV=5000
FV=6724.44
I=7%
N=?
N=12 quarters=12/4=3 years

4. What interest rate is implied if you borrow RM12,500 and repay RM21,362.24 in
three years with monthly compounding?

PV=12500
FV=21362.24
N=3x12=36
I=?
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

I= 17.99%

5. Angel has just been paid RM400,000 by an insurer and intends to place the money in
a bond fund with an expected return of 6% a year. How long will it take for the sum to
be RM 1 million?

PV=400,000
FV=1,000,000
I=6
N=?
N=15.73 years

6. Ben plans to place RM75,000 in a fixed deposit account with an interest rate of 4 % a
year. The FD pays interest every quarter and the amount is re-deposited to earn
interest. He wants to know how much money is available after 10 years.

PV=75,000
FV=?
I=4
N=10x4=40
FV=111664.78

7. Ahmad requires RM80,000 in 5 years’ time. He has placed his funds in a vehicle that
generates an annual compounded rate of 7.75%. How much must he invest in a lump
sum now?

PV=?
FV=80000
I=7.75%
N=5
PV=55081.23

8. There are 2 investment plans, X and Y. Plan X involves setting aside RM500 at the
beginning of every quarter for 10 years. Plan Y requires an amount of RM 250 at the
beginning of each quarter for 20 years. If the rate of return is 9% a year compounded
quarterly, which plan provides a higher future value?

Plan X Plan Y

PMT=500 PMT=250
N=10x4=40 N=20x4=80
I=9 I=9
FV=? FV=?
FV=32610.68 FV=56011.93

Plan Y provides a higher future value

 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

9. Peter plans to retire with an annual income of RM125,000 each year for a period of 25
years. Compute the total fund required if the retirement fund is earning 5% at the
distribution phase and the retirement fund starts immediately when Peter reached his
retirement age.

Retirement=begin mode
PV=?
PMT=125000
I=5
N=25
PV=1849,830.22

10. Assume that you plan to buy a condominium 5 years from now, and you estimate that
you can save RM2,500 per year. You plan to deposit the money into the bank that
pays 4% interest, and you will make the first deposit at the beginning of each year.
How much will you have after 5 years?

PMT=2500
I=4
N=5
FV=?
FV=14084.44

11. Annual deposits of RM24,000 have been made at the beginning of each year into the
annuity policy fund for the last 20 years. During this period, the interest earned on the
deposits was as follows:

i) 10% for the first five years

ii) 8% for the next five years
iii) 9% for the last ten years

i. Calculate the accumulated amount at the end of 20 years.

FV for first 5 yrs

PMT=24000
N=5
I=8
FV=?
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

FV=161174.64
ii. Calculate the total interest earned for the 20 years.

Tutorial 3: Housing and Automobile Decision

1. Jessica bought an apartment for RM250,000 and paid a down payment of RM50,000.
She is taking a 20 years loan at a nominal sum of 6% per annum on monthly rest from
a bank.

a. What is the monthly installment?

b. What is the outstanding balance after paying for 12 years?
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

c. What is the principal paid at the 60th payment?

d. What is the total interest paid at 50th payment?

2. David had just visited the launch of new condominium project and he is very keen to
purchase a unit. The developer price for the unit that he had set his eyes upon is
RM450,000. If he were to sign up within the next three days, he can enjoy 10% cash
rebate. David quickly called you and seeks your advice on certain matters. Assuming
he intends to take up a 25-year loan with a 80% margin of financing at an average
lending rate of 6.25% p.a.

a. What would be his monthly installment?

b. How much of the third installment went towards reducing the principal and
how much of it went towards interest expense?
c. Assuming he intends to fully settle his loan after 10 years, how much does he
need to repay the bank?
d. If he had continued paying throughout with the same terms and conditions,
how much interest expense would have been incurred by David?
e. Calculate the instalment if David refinances his house with Bank AAA after
15 months with interest rate of 4.6%. p.a. for 25 years.

3. Suppose you borrowed RM30,000 on a loan at a rate of 8% and must repay it in 3

equal installments at the end of each of the next 3 years. How large would your
annual payment, how much of the first payment would represent interest, how much
would be principal?
4. Johnny has just graduated from college and is eager to start his working life. To
commute to his office he needs a car. He is planning to buy a Myvi which will cost
him RM48,000. His parents are willing to help him to pay a down payment of
RM5,000. He is applying a loan from Mbank which will incur an annual interest rate
of 3.55%. The tenure of the loan is 7 years.
a. What is his monthly installment for the car?
b. If his starting salary is RM2,500 nett per month, how much is his non-
mortgage debt service ratio? Can he afford the car?

5. Harris has identify a RM75,000 Toyota Vios to be his first car. He is planning to pay
a down payment of RM5,000. Harris has got an offer from a bank that charges him an
annual interest rate of 3.00% for the hire purchase loan for a duration of 5 years. He
would like to take up the offer. Determine the monthly installment that Harris needs
to pay for the car.

6. Michelle wants to know what price home she can afford. Her annual gross income is
RM45,000. She owes RM750 per month on car and RM250 per month on study loan.
She knows she can get a 5.5%, 30 years mortgage. She expects to make a 20% down
payment. What is Michelle's affordable home purchase price?
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

Tutorial 4: Protecting Your Property

1. The goal of Risk Management is to minimize any risk or potential risk. Discuss the
risk management process.

Step 1: Identify sources of risk

Step 2: Estimate risk and potential losses.
Step 3: Choose how to handle risk
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

Step 4: Implement the risk management program

Step 5: Evaluate and adjust the program

2. With an example, discuss the differences between physical hazard, moral hazard and
morale hazard.

Moral hazard describes the behavioral changes that might increase the risk of loss
taken because the actor will not bear the responsibility should things go wrong.
Morale hazard is an insurance term used to describe an insured person's attitude
about their belongings. It represents the rise of indifference to loss because the items
are covered.

3. Why are the following risks uninsurable:

a. Loss due to business operation - speculative risk can be loss, no loss or no profit
b. Loss as a result of landslide – it is fundamental risk and it brings catastrophic loss
cant be predicted thus cant be underwritten

4. What is the purpose of personal liability coverage?

Personal liability insurance is about financial protection – for you and your
family. The personal liability coverage within your homeowners policy
provides coverage to pay for claims of bodily injury and property damage
sustained by others for which you or covered residents of your household
are legally responsible.

Personal liability coverage covers you or other residents of your household

that are deemed legally responsible for property damage or bodily injury
suffered by others while on your property. This insurance means that you
won’t have to pay legal fees or medical bills out of pocket.

5. What coverages are commonly included in a homeowner's insurance policy?

Typical homeowners insurance policies offer coverage for damage caused by fires,
lightning strikes, windstorms and hail. It also covered dwelling protection , personal
property protection, liability protection and other structures protection

6. What factors affect the cost of home insurance?

Here are 10 factors that affect how much homeowner insurance
costs:

1. Where you live.

2. The price of your home and the cost to rebuild it.
3. The amount of coverage.
4. Your home’s age and condition.
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

5. Home security and safety features.

6. Your credit history.
7. Additional types of coverage.
8. Your deductible.
9. Bundling other insurance from the same company.
10. Your choice of insurance provider.

7. If a house is razed by fire, what is the replacement cost to rebuild assuming inflation
rate is 5% and the house was built at a cost of RM300,000 seven years ago?

End mode
PV=300,000
R=5
N=7
FV=422130.13

8. Alex owns a condominium with a value of RM200,000. He has insured this property
against fire risks for RM180,000. In the event of a partial damage due to fire, the loss
incurred was RM90,000. Calculate how much loss Alex has to bear in this event.

Compensation amount= (insured value/ property)*indemnity value

= ( 180,000/ 200,000)*90,000
=RM81,000
Loss= RM90,000-RM81,000=RM9,000

9. Dale and his wife Jenny are legally separated. The couple owns a vacation cabin. Dale
purchased a RM25,000 property insurance policy on the cabin. Unaware that Dale had
purchased this coverage, Jenny purchased a RM50,000 property insurance policy on
the cabin. While both policies were in force, a RM12,000 covered loss occurred.
Which of the following claim would be the most likely available to them? Explain.

 Dale’s insurer pays RM4,000 and Jenny’s insurer pays RM8,000

 Dale’s insurer pays RM3,000 and Jenny’s insurer pays RM9,000

Compensation amount= (insured value/ property)*indemnity value

Dale=(25,000/75,000)*12,000=RM4,000
Jenny=(50,000/75,000)*12,000=RM8,000
Total claim payable=actual loss sustained -RM12,000
Dale claim would be the most likely available to them.
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

Tutorial 5: Protecting Your Health

1. Discuss the various policies related to health insurance that are available in Malaysia
market. Which of the policies discussed is more important to you and your family?

i. Hospitalization and surgical benefit plan (H&S)

It commonly known as medical card in Malaysia. It is usually referred to insurance
schemes that compensate for expenses incurred if insured is hospitalized. Some plans
entitle you to some cash for the duration of your stay in the hospital, aiming to deflect
the extra costs that you incur while hospitalized. It also can be a stand-alone policy or
as rider contracts to life insurance.
ii. Critical illness
It commonly known as 36 Critical Illness plan in Malaysia. It pays you a lump sum
when you are diagnosed with any of the stated dreaded diseases. Some serious
illnesses might not be covered by a critical illness policy. For example, some cancers
and ‘chronic’ or long-lasting conditions that could mean you can’t work might not be
covered. Health problems you knew you had before you took out the insurance are
also very unlikely to be covered.
iii. Personal accident plans
It has a certain measure of coverage for hospital bills relating to your accident. Some
personal accident plans cover a certain extent of medical bills should an insured
incurred medical cost on his injuries or hospitalization event solely due to an accident.
The Hospitalization and surgical benefit plan (H&S) is more important to me and my
family.

2. How can you analyze the costs and benefits of your health insurance policy?

The costs of health insurance policy can analyze due to the factor that affect the costs
of medical insurance. These factors are deductible which mean the amount of
expenses that must be paid out of pocket. Next, co-insurance or co-payment which
mean the risk iShares based on percentages between the insurance company and
insured. Hazard reduction can be used to analyze the costs of health insurance policy
as action is taken by insured to reduce the probability of loss. Reducing amount
insured will also a type of analysis on the costs of health insurance policy. The
benefits of health insurance policy include it designed to pay off your medical bills,
mortgage, debts or pay for alternations to your home at such time if you are diagnosed
with one of the serious illnesses covered by the insurance policy as life is
unpredictability.
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

3. Describe both the liberal and strict definitions used to establish whether an insured is
disabled.

The liberal definition of disability is own occupation. This is an insurance policy that
covers individuals who become disabled and are unable to perform the majority of the
occupational duties that they have been trained to perform. This type of insurance
policy is contingent on the individual being employed at the time the disability occurs.
Persons not working at the time of disablement will not be able to claim insurance
under an own-occupation policy but, if they are covered under a modified own-
occupational policy, they will. Under a modified policy, the definition of disabled
includes persons not working at the time of their disablement. These types of
insurance policies apply to highly trained individuals, such as surgeons. Because the
definition on own-occupation is very flexible, persons covered under an own-
occupation policy may find another job and still receive full benefit payments. Any
occupation definition is strict. Any occupation is disabled from performing the duties
of any occupation that the insured can reasonably be expected to perform as a result
of his past training, education and experience. This definition is slightly more
restrictive. Using the above example, the surgeon will not be able to claim as he is
still able to lecture in medical school or give consultation which is consistent with his
training, education, and experience.

4. Paul is covered by a comprehensive medical policy that specifies a RM500 deductible

each calendar year and a 20% coinsurance provision.
In Feb 2018, Paul incurred RM5,000 in covered expenses. In June 2018, he incurred
RM10,000 in covered expenses. He incurred no other covered expenses during year
2018.
Based on the above information, calculate the amount Paul has to pay for year 2018.

(RM10,000+RM5,000-RM500) *20%=RM2,900

RM2,900+RM500=RM3,400

Paul has to pay RM3,400 for the year 2018.

5. Winston purchased a medical plan which had a Room & Board entitlement of RM150
and all other expenses based on an As Charged Basis subject to an Annual Limit of
RM60,000. One day Winston was admitted to hospital for what was later diagnosed
as dengue fever. Instead of his eligibility for a twin sharing room, he opted for a
single bedded room which costs RM280 per day. Five days later when Winston was
being discharged he received a total bill of RM9,000. The policy imposed 20% co-
insurance on expenses other than room and board. Compute how much Winston has
to pay and the amount he can claim from insurance company.

Entitlement R&B- 150 X 5=750

He opted for single room = 280 x 5 -1400

 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

The difference is RM650

Total bill RM9000
Minus R&B RM1400
RM 7600
Minus 20% RM6080
Insurance claim= RM6080+750=RM6830
Winston need to bear=RM9000=RM6830=RM2170

6. John met a car accident and immediately rushed to hospital for treatment. He
remained there for 60 days, after which he was allowed to go home for further
recuperation. During his stay in hospital, he incurred the following expenses:

Surgery RM7,500
Physician RM3,000
Room and board RM 185 per day
Nursing service RM 2,500
Anesthetics RM 1,000
Wheelchair rental RM 100
Ambulance RM 150
Medicine RM 900

John has a medical policy with Zin Company that has RM2,000 deductible clause; an
20% coinsurance clause; internal limits of RM180 per day on room & board; and
RM5,000 maximum surgical fees.

How much John can claim from his insurance company? How much must he pay out
of his own pocket?

Cost involved Insurance claim

Surgery RM7,500 5,000
Physician RM3,000 3,000
Room and board (RM RM 11,100 (RM180*60)=10,800
185*60days)
Nursing service RM 2,500 2500
Anesthetics RM 1,000 1000
Wheelchair rental RM 100 100
Ambulance RM 150 150
Medicine RM 900 900
26,250 23,450

Insurance Company pay 23450

Minus: Deductible (2,000)
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

21,450
Coinsurance 20% (4,290)
Net pay out 17,160
John has to bear RM26250-RM17160=RM9090

Tutorial 6: Protecting Your Life

1. Ally earns RM75,000 annually. If she should die, she wants her family to receive
RM60,000 annually for the next 15 years, with the first payment due upon her death.
She also wants to set aside a final expense fund of RM15,000 and pay off the
mortgage, car loan and outstanding credit card balances. She does not wish for her
house and car to be sold upon her death. She assumes that the inflation rate is 5% per
annum. The extracts of her personal balance sheet are as follows:

What She Has RM What She Owes RM

House 300,000 Car 15,000

Car 40,000 Mortgage 100,000

Bank deposit 60,000 Credit card balance 5,000

Life insurance (Sum 150,000

assured)

Determine the amount of Ally’s total life insurance needs.

2. Mary is a 72-year old widow who has recently been diagnosed with Alzheimer’s
disease. She has limited financial assets of her own and has been staying with her
daughter Jane for 2 years. Her only income is RM850 a month from Social Security
benefits. Jane wants to make sure her mother will be taken care of if Jane should die.

Jane, 40, is single and earns RM55,000 a year as a human resources manager for a
small firm. She owns a condo with a current market value of RM100,000 and has a
RM70,000 mortgage. Other debts include a RM5,000 car loan and RM500 in credit
card balance. Her retirement account has a balance of RM24,500 and she keeps
RM7,500 in a money market account for emergencies.

After talking with her mother’s doctor, Jane believes that her mother will be able to
continue living independently for another 2-3 years. She estimates that her mother
would need about RM2,000 a month to cover her living expenses and medical costs
during this time. After that her mother would probably need nursing home care. Jane
calls several local nursing homes and finds that it will cost about RM5,000 a month
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

when her mother enters a nursing home. Her mother’s doctor says it is difficult to
estimate her mother’s life expectancy but indicates that with proper care some
Alzheimer’s patients can live 10 or more years after diagnosis.
Jane also estimate that her personal final expenses would be around RM5,000 and she
would like to provide RM25,000 contingency fund that would be used to pay a trusted
friend to supervise her mother’s care if Jane was no longer alive.

Require:
Calculate Jane’s total life insurance requirements and recommend the type of policy
she should buy.

3. While at lunch with a group of colleagues, one of your friends mentioned that she
plans to buy an investment-linked plan policy because it provides a good annual
return and is a good way to build savings for her 5 year-old’s son college education.
What advice would you give them?

4. What do the terms "term", "decreasing" or "declining term", and "whole life" mean
with respect to life insurance?

5. Jason (aged 40) is married to Joyce (aged 35) and they do not have any children.
Jason owns the following assets: a bungalow house in Setia Alam worth
RM1,200,000; a condominium in Puchong Jaya worth RM550,000; a Mazda CX5
worth RM120,000; a Toyota Camry worth RM95,000; a Harley Davidson worth
RM70,000. His liabilities are a housing loan on his Bungalow house outstanding at
RM900,000 and second housing loan on the Condominium at RM450,000; a hire
purchase loan on his Mazda CX5 at RM95,000, second loan on the Toyota Camry at
RM70,000 and third loan on the Harley Davidson at RM60,000

He has stocks on Bursa Malaysia worth RM225,000; unit trust worth RM255,000;
group life insurance provided by is employer with sum assured of RM300,000; and a
personal life insurance policy with a Face Value of RM500,000.

Upon his death, Jason would like to provide for his wife RM60,000 every year till she
is 70 years of age. In addition, he would like to set aside RM50,000 for final expenses
(funeral and bereavement expenses) and RM80,000 as an emergency fund.

Compute the following (Assume a discount rate of 4% per annum and that income is
received at the end of the period:

a) Calculate the net worth of Jason.

Total Assets -T0tal Liabilities=3,315,000-1,575,000=RM1,740,000
b) Calculate the capital needed to generate regular income needs to be left to Joyce till
she reaches age 70 using capital liquidation method.

End mode, P/Yr=1

PMT=60,000
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

N=35 (70-35)

c) Calculate the lump sum capital needs. (Liabilities and other needs to be settled upon
Jason’s death)

RM
Mortgage (bungalow + condo) 1,350,000
Hire Purchase loan ( 3 cars) 225,000
Final expenses fund 50,000
Emergency fund 80,000
Total 1,705,000

d) Calculate the value of income-producing assets. (Asset that can be liquidated for cash
upon Jason’s death)

Stock 225,000
Unit Trust

e) Calculate the shortfall required for the family’s financial needs. (Additional amount of
life insurance that will provide an immediate capital sum of money in the event of
Jason’s sudden death)

Tutorial 7: Managing Credit

1. William is trying to decide whether to apply for a credit card or a debit card. He has
RM8,500 in a savings account and he spends his money frugally. What advice would
you have for William? Describe the benefits and drawbacks of each type of card.

2. Harvey recently graduated from college and wants to borrow RM50,000 to start a
business, which he believes will produce a cash flow of at least Rm10,000 per year.
As a student, Harvey was active in clubs, held many leadership positions and did a lot
of community service. He currently has no other debts, he owns a car worth about
Rm10,000 and has RM6,000 in savings account. Although the economy is currently
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

in a recession, economic forecasters expect the recession to end soon. If you were a
bank loan officer, how would you evaluate Harvey’s loan request within the context
of the ‘5 C’s of Credit’? briefly describe each characteristics and indicate whether is
has favorable or unfavorable implications for Harvey’s loan request.

3. For Alicia, the last few years have been a financial nightmare. It all started when she
lost her job. Because she had no income and no emergency fund, she began using her
credit cards to obtain the cash needed to pay everyday living expenses. Finally, after
an exhaustive job search, she has a new job that pays RM51,000 a year. While her
monthly take-home pay is RM2,975, she must now establish an emergency fund, pay
off her RM7,300 credit card debts, and start saving the money needed to begin an
investment program.

a. If monthly expenses are RM2,150, what is the minimum amount of money

should Alicia save for emergency fund?

b. What steps should Alicia take to pay the RM7,300 credit card debts?

4. Audrey has monthly income of RM2,100. She has the following monthly payments:

House RM900
Car loan RM500
Visa card RM100
Student loan RM200

What is Audrey’s non-mortgage debt service ratio? Comment.

5. By law, credit card issuers must print their annual percentage rate (APR) their
monthly statements. A common APR is 18% with interest paid monthly. What is the
effective annual rate on such a loan.

6. Because of a job change, Charles has just relocated to another state in Malaysia. He
sold his furniture before he moved, so he is now shopping for new furnishings. At a
local furniture store, he has found an assortment of couches, chairs, tables and beds
that he thinks would look great in his new apartment. The total cost for everything is
RM6,400. Because of moving cost, he is a bit short of cash so he decided to take out
an installment loan for RM6,400 to pay for the furniture.

The furniture store offers to lend him money for 48 months at a simple interest rate of
6.5%. The credit union at Charles’s firm also offers to lend him the money- they will
give him the loan at compound interest of 6%, but only for a term of 24 months.

a. Compute the monthly payment for both of the loan offers.

b. Determine the APR for both loans.

 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

c. Which is more important: low payments or a low APR? Explain.

Tutorial 8: Tax Planning

1. Mr Tong has 2 children. Age 19 and 12. The older child is currently attending college
full time whereas the younger child, who is disabled, is in primary 6. He bought a
medical policy for the younger child, paying an annual premium of RM3,900.

For the year of assessment of 2018. Mr Tong’s net taxable income from employment
is RM379,260, of which RM350,000 is salary and the balance is taxable benefits-in-
kind. He also received net rental income of RM53,000. He contributes to EPF and
SOCSO.
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

His wife is a full-time homemaker. The couple spend alternate weekends volunteering
at two orphanages (both approved for tax purposes). In 2021, Mr Tong made
donations totaling RM10,000 in cash to these orphanages. In the same period, he
bought books totaling RM1,500.

Compute the chargeable income and tax payable for Mr Tong for year of assessment
2021

2. Encik Mufasa, age 45, is married with five children. He comes to you for advice on
how to compute his personal tax liability for year 2021. He provides you with the
following information:

RM
His salary 75,000
Wife’s salary 42,000
Dividend received-by him 3,000
Dividend received -by his wife 2,000
Purchase of computer (by Mufasa) 3,100
Life insurance- himself 2,500
Life insurance- his wife 1,800
Children education policies (Mufasa as 2,000
payor)
PRS contribution- Mufasa 2,000
PRS contribution- wife 1,000
Approved donation by Mufasa 500
Zakat- Mufasa 950
Zakat- wife 550
Purchase of books 1,000 (each person)
Subscription to gym (Mufasa) 1,800
Medical insurance- himself 1,800
Medical insurance- wife 900

4 of his children are in secondary school and one studies in University Malaya 1st year
in Business study.
Required:

Mufasa wants to know the tax liability between joint and separate assessment. You
are required to do the tax computations.
Tutorial 9: Investment Planning
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

1. Bob and Mary Martin are both 35 years old. Although they graduated from college almost
15 years ago, they have never developed a diversified investment program. What extra
money they had was invested in high-tech stocks that did quite well until the last five
years. Then, with the economic downturn, they encountered major losses. How could
asset allocation have reduced the dollar amounts of the Martin's losses?

2. A couple in their early thirties, Allen and Sandra, recently inherited RM90,000 from a
relative. Allen earns a comfortable income as a sales manager and Sandra does equally
well as an attorney with a major law firm. Because they have no children and don’t need
the money, they have decided to invest all of the inheritance in stock market. However,
because they are not familiar with the market they turn to you for help. What kind of
investment approach do you think the couple should adopt—that is, should they be
conservative with their money or aggressive? Explain.

3. Discuss the advantages of investing through mutual funds versus investing directly in
stock. If you had to invest, which one would it be? Explain.

4. If you had RM100,000 that was invested at 7% and you wanted to withdraw RM10,000
at the end of each year, how long would your fund last?

5. What would be the future value of a 5 year investment if the initial investment is RM100
at 10% compound interest or at 10% simple interest?

6. What is the present value of a 5-year ordinary annuity of RM100 plus an additional
RM500 at the end of Year 5 if the interest rate is 6%?

7. Alan wants to have a lump sum savings of RM200,000 in 25 years’ time. Assuming he
can earn 11% p.a. compounded after tax and expenses, what would be the size of the
yearly payments into the fund to accrue the desired lump sum, if the payments are made
at the end of each year?

8. Ali plans to send his child abroad for university education. The tuition fees and living
expenses today is RM120,000 for the entire 3-year degree course. Ali assumes that the
child will undertake a three years degree course. Ali’s child is 15 years away from
attending university. He also assumes that the inflation rate is 4% p.a. and his investment
return is 5% p.a.

a. Calculate the future cost of tuition fees and living expenses in 15 years’ time.
b. Calculate the monthly savings, starting immediately, in order to have sufficient
funds to realize Ali’s objective.
c. Calculate the monthly savings, starting immediately, in order to have sufficient
funds to realize Ali’s objective, if Ali wishes to save only for 10 years.

Tutorial 10: Retirement Planning

 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

1. A couple wants to accumulate a retirement fund of RM300,000 in current dollars in 18

years. They expect inflation to be 4% per year during that period. If they set aside
RM20,000 at the end of each year and earn 6% on their investment, will they reach their
goal?

2. A client is concerned about the impact that inflation will have on her retirement income.
The client currently earns RM40,000 per year. Assuming that inflation averages 5.5% for
the first five years, 4% for the next five years and 3.5% for the remaining time until
retirement, what amount must her first-year retirement income be when she retires
thirteen years from now if she wants it to equal the purchasing power of her current
earnings?

3. Chin Chin has a retirement goal. She plans to retire in 20 years’ time when she is 55. She
would like to have a regular retirement income of RM100,000 per year during her
retirement for a period of 25 years. She expects to have the first withdrawal make
immediately upon retirement. She anticipates a return of 6% per year from any of her
investments.

a. Compute the retirement fund that Chin Chin has to achieve when she retired.

b. If Chin Chin is able to set aside RM10,000 at the beginning of each year starting from
now, determine whether she would be able to achieve her retirement goal based on
your answer in Part (a).

4. Peter is going to retire soon. Currently he has RM1,200,000 in his retirement account. He
anticipates a return of 7% per annum on his retirement fund. He expects to live for
another 25 years after retirement. To maintain his lifestyle during his old age, he would
like to make withdrawals at the beginning of every year from his retirement account.
Compute the annual withdrawal amount that Peter is entitled to from his retirement
savings.

5. Hoon owns a condo worth RM240,000, a car valued at RM25,000, and miscellaneous
assets worth RM7,500. She owes RM185,000 on the condo and RM15,000 on the car and
has no other debts. Her retirement account, in which she is fully vested, contains
RM27,500 in mutual funds. She is insured with a RM500,000 term life insurance policy.
What is her net worth?

6. Joe is planning for his retirement. He has determined that his car is worth RM10,000, his
home is worth RM150,000, his personal belongings are worth RM100,000. His
investment in stock and bond are worth RM300,000. He owes RM50,000 on his home
and RM5,000 on his car.
Joe is planning to retire when he is 55. He is 40-year old now. He would like to have a
regular retirement income of RM60,000 per year during his retirement. He foresees that he
 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

may live up to age 80, based on his family longevity history. He expects to have the first
withdrawal make immediately upon retirement. He anticipates a return of 5% per year
from any of his investments.
(a) Compute and comment on Joe’s net-investment-to-net-worth ratio.

(b) Compute the retirement fund that Joe has to achieve when he retired.

(c) If Joe is able to set aside RM10,000 at the end of each year starting one year from
now, determine whether he would be able to achieve his retirement goal based on
your answer in part (b).

Tutorial 11: Estate Planning

 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

1. Renee and Steve are in their mid-thirties and have two children, age 8 & 5. They have
combined income of RM95,000 and own a house in joint tenancy with a market value of
RM310,000, on which they have a mortgage of RM250,000. Steve has RM100,000 in
group term life insurance and an individual whole like policy for RM150,000. However,
the couple has not prepared their wills. Steve plans to do one soon, but they think that
Renee doesn’t need one because the house is jointly owned. As their financial planner,
explain why it is important for both Steve and Renee to draft wills as soon as possible.

2. Your best friend has asked you to be executor of his estate. What qualifications do you
need, and would you accept this responsibility?

3. Describe the basic trust arrangement.

4. Discuss typical reasons for establishing trust.

5. What essential qualities should a trustee possess?

6. Distinguish between a will and a trust.

Tutorial 12: Financial Plan Construction & Modeling

 KOLEJ UNIVERSTY TUNKU ABDUL RAHMAN
BBMF2113 PERSONAL FINANCIAL PLANNING
January 2022

1. Discuss the characteristics of an effective financial plan.

2. What is the purpose of having executive summary in a financial plan?

3. Is the disclaimer statement important to be included in a financial plan? Discuss.

4. Sometime even though a person had spent time constructing a financial plan with a
financial planner, why doesn’t the financial plan work?