How you manage your cash or money on a day-to-day basis will impact whether your long-term financial objectives will be met or not.
Question 1
(a) i) From Chapter 2 "Mind Your Own Finances" from the book Managing Your Personal Finances, what are the main considerations when setting financial goals?
- List 5 personal financial goals.
(b) The Cash Flow statement gives us an idea how we arrived at our current financial state by looking at sources of income and expenditure during a period of usually a year. With this in mind, you are to collate your own financial data and construct your own Cash Flow statement for the period 1.1.2012 to 31.12.2012 by using the template as shown in your lecture slides.
(c) The Personal Balance Sheet tells us the current state of our financial health at a specific point in time. You are to collate your own financial data and construct your own Personal Balance Sheet as at 31.12.2012 by using the template as shown in your lecture slides.
(d) Based on your own current Cash Flow statement and Personal Balance Sheet, you are to compute the following five (5) financial ratios and interpret your current financial health.
Financial Ratio
- Basic Liquidity Ratio
- Debt Service Ratio
- Liquid-Assets to Net Worth Ratio
- Net Investment Assets to Net Worth Ratio
- Debt-to- Asset Ratio
Question 2
(a) Life expectancy is very difficult to estimate. However, it is generally agreed that all else being equal, people are expected to live longer and healthier. Granted that the methods used to estimate mortality are purely hypothetical, it is still good to understand what affects your mortality.
The activity at the following link attempts to estimate your life expectancy based on your personal lifestyle and habits. Please go to
http://www.livingto100.com and click on "Take The Calculator" to do the evaluation and capture the
final screen showing your estimated mortality on your TMA answer.
This expectancy is what I got from attempting the activity.
(b) With the information obtained from the Life Expectancy Calculator, assume you are retiring at the age of 62 (the official retirement age).
prof=mem , calculate the retirement funding you would require to finance your retirement using the following assumptions:
- Use the "How much would I need to get a desired monthly retirement income for a fixed period?" Option
- Desired monthly retirement income is the amount I currently spend per month (taken from Cash Flow statement)
- Number of years to provide for is the difference between life expectancy and retirement age
- Monthly income is your annual income divided by 12
- Bonus income = 0
Insert the results of the Retirement Calculator into your TMA answer.
(c) i) What are the assumptions for investment returns and inflation used in the CPF Retirement Estimator?
ii) What will the impact be on your retirement fund if inflation was a higher value, and why? How will this affect you? (assume investment returns cannot be safely improved).
Question 3
(a) CPF has an interest calculator to help you work out your instalment commitments to a property purchase. Using The CPF
Total Interest calculator can be located at http://www.cpf.gov.sg/cpfhsg/Hsg_totInt_calc.asp, work out the amortisation table for a
property loan using the following variables.
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Description
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Amount
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Upfront Deposit/ Payment
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$200,000.00
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Loan Amount
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$500,000.00
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Loan Repayment Period
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25 years
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Interest Rate of the Loan 1st Year
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1.00%
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Interest Rate of the Loan 2nd Year
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1.50%
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Interest Rate of the Loan 3rd Year
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2.50%
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Interest Rate of the Loan 4th Year
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3.50%
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- Attach the printout of your calculations in the format shown below.
- Determine the Percentage of Total Payment Spent on Interest (please show working).
(b) How would the purchase of the above personal use property valued at $700,000 affect the financial ratios discussed in question 1d). Assume you have sufficient funds for the initial payment of $200,000. Explain your answers with workings.
(c) When buying their dream (or first) home, many people tend to compute their monthly instalments based on the maximum they can afford each month. This phenomenon is due to emotional euphoria rather than logical thinking. While Singapore has been in a low mortgage interest environment for many years, this trend is set to reverse and the market is expecting interest rates to increase. What is the consequence of this increase in interest rate to home buyers who have already invested so much to buy their homes? Discuss.