Question

 Time Value of Money in Personal Finance

 Mr. Haris, 32 years and Mrs Tini aged 30 years has been married for 5 years now. They have two kids, Arif age 4 and Amira, 1 year. The spouse is planning to send their kids to further their study to a local university after completing tertiary education at the age of 18. Taking into consideration the inflation rate, education cost for the next 14 years is estimated to be amounting RM90,000 which will include the education fee and living expenses for a 4 years study period. This cost will increase at the rate of 2 percent a year onwards.

 The spouse has taken an insurance policy for both of the kids starting this year. Premium payment for the policy is RM3,360 yearly for Arif and RM3,000 yearly for Amira. This policy will give an expected return of 5.0 percent annually and will mature when the kids reach 18.

 1. Calculate the value of the insurance policies for both of the children upon maturity. 

 2. How much surplus or deficit the value in (1) as compared to the cost of education for each of the children.  

 3. How much monthly the family should invest for each children if it is to be invested in a unit trust fund that will give a 6 percent in return to cover the amount in (2)?  

 4. If the family decide to cancel the insurance, how much lump sum money need to be saved today to achieve the education objective for each of the children if it to be invested in the same unit trust

 fund in (3)?.

 5. If the family plan to achieve the education fund in 8 year, how much rate of return should they look for in the unit trust fund? 

 (Draw the time line in all of your solution)

Answer 1

1) Compound interest for Arif

Assuming 5 percent interest on each year amount.

Maturity amount is 65851.39

For Amira

maturity amount is 73972.46

For aruf number of year is 14 and for Amira number of year is 17

2) For Arif 90000-65851.39

=24148.61 Deficit

For Amira 90000- 73972.46

=16027.54 deficit

3)For arif monthly premium will be 3125

For Amira 2631.58

4)Lump sum amount will be above answe into 12

That mean yearly whole amount

For Arif 3125*12=37500

For amita 2631.58*12=31578.96

Answer 2

[REMOVED]