COR167 Tutor-Marked Assignment: Finance and Estate Planning Analysis

This document presents a comprehensive solution to a Tutor-Marked Assignment (TMA) for the COR167 course, focusing on managing personal finances. The assignment analyzes a case study involving Julian Lim and his family, addressing wealth protection through insurance planning, investment strategies, and estate planning. The insurance section examines various insurance policies, including mortgage-reducing term insurance, critical illness benefits, and whole life plans, evaluating their coverage and benefits. The investment section delves into financial instruments such as convertible bonds and put options, calculating break-even points, maximum losses, and profit/loss scenarios. The estate planning segment explores strategies for CPF nominations, special needs savings schemes, and the creation of wills and trusts to address the needs of family members. The solution provides detailed answers to specific questions, along with relevant references, offering a practical application of financial concepts and strategies.

Insurance
1a
1. A -I and II only
2. C –The insurer will reimburse the insured only to the extent of the insured’s financial loss
3. C –Risk shifting and transfer
4. C –They usually replace all lost earnings
5. A –Select a long waiting period or elimination period
6. D –Temporary annuity
7. B –The interest rate actually earned exceeds assumed interest rates
8. B –Retiring an installment debt obligation at death
1b
i) It means utmost good faith. Insurance contracts abide by this. Since insurance companies share the
risk, it is expected that the insured will act in good faith. That is they will disclose all material information
that is relevant to the policy (Inestopedia, 2018).
ii) Uberrimae Fidei is important to underwriting because it ensures that the company will charge an
appropriate premium commensurate to the level of risk. An insurance company may protect itself from
non disclosure by rejecting to pay a claim if it arises or cancelling the policy (Inestopedia, 2018)
1c
The waiver of premium is a rider in life insurance policies. For an additional premium, the company will
pay your life insurance premium in the event that you are totally disabled and qualify. A total permanent
disability policy pays for the portion of your income in the event of a disability (Kuhn, 2018).
1(d) Policies
(i.) Contract a major illness
Julian Lim’s Term plan which includes $500,000 Critical Illness benefit
The amount that would be paid would be up to a maximum of $500,000 to Poh Eng, provided
the illness she contract is one of the sicknesses that are insured under the policy.
Poh Eng’s whole life plan. The plan covers her for accelerated Critical Illness with a benefit of
up to $50,000 provided the illness she contract is one of the sicknesses that are insured under
the policy.

(ii.) Pass away one year later
Julian Lim’s $600,000 Term plan .The amount that would be paid would be up to a maximum of
$600,000 to Julian Lim
Poh Eng’s whole life plan up to $70,000 will be paid to her beneficiaries
mortgage reducing term insurance will pay out the outstanding loan balance
2(a)
TRUE The owner of a convertible bond has the option to become a shareholder.
TRUE The expected return of a portfolio return is a weighted average of the component expected
return.
FALSE A large reverse split will reduce the number of shareholders.
TRUE A warrant gives its owner the right to sell shares back to the company at a predetermined
price.
TRUE A retail food chain is a cyclic stock.
FALSE A forward PE is sometimes less than a trailing PE.
FALSE If a firm’s asset turnover increases, its return on assets also increases, assuming everything else
remains constant.
TRUE A stock that breaks through support level gives a bullish signal.
FALSE Increased margin buying has historically been associated with recently rising markets.
TRUE Small firms tend to outperform those with larger capitalization

2(b)
(I)
Breakeven = Strike Price – Premium
=$3.00 -$0.30= $2.70
$2.70 per share
That means the price per share must fall below $2.70 for Julian Lim to make a profit.
(ii) maximum loss to be incurred by Julian Lim in this put option strategy.
The maximum loss is equal to the premium paid per share
Therefore max loss is $30 ( 0.3 *100)
(iii) maximum gain to be produced for Julian Lim by this put option strategy.
= Strike price - Premium
=3.00 – 0.30
=$2.70 per share
Therefore max gain is $270 ( 2.70 *100) for 100 shares.
(c) a profit/loss table.
Stock Price Value of Put at expiration
=max($3-Stock price,0)
cost of $3 put profit or
loss (b-c)
$ - $ 3.00 $ 0.30 $ 2.70
$ 0.30 $ 2.70 $ 0.30 $ 2.40
$ 0.60 $ 2.40 $ 0.30 $ 2.10
$ 0.90 $ 2.10 $ 0.30 $ 1.80
$ 1.20 $ 1.80 $ 0.30 $ 1.50
$ 1.50 $ 1.50 $ 0.30 $ 1.20
$ 1.80 $ 1.20 $ 0.30 $ 0.90
$ 2.10 $ 0.90 $ 0.30 $ 0.60

$ 2.40 $ 0.60 $ 0.30 $ 0.30
$ 2.70 $ 0.30 $ 0.30 $ -
$ 3.00 $ - $ 0.30 $ (0.30)
$ 3.30 $ - $ 0.30 $ (0.30)
$ 3.60 $ - $ 0.30 $ (0.30)
$ 3.90 $ - $ 0.30 $ (0.30)
$ 4.20 $ - $ 0.30 $ (0.30)
$ 4.50 $ - $ 0.30 $ (0.30)

Estate planning
3a
The statement is not valid. Poh Eng does not require any written approval from her husband or children
to remove them as beneficiaries from her life policy.
She only needs to either contact her financial advisor or the insurance company directly regarding the
changes to the beneficiaries
3b
(i)
The Special Need Saving Scheme purpose is to enable parents to set aside their CPF savings for the long
term care of their children with special needs. Under this scheme, parents can nominate to provide a
regular stream of fixed income to a child with special needs upon the parent’s demise (SNTC, 2018).
(ii)
To increase accumulation under the SNSS, parents can top up their CPF accounts via the Retirement
Sum Topping up scheme or via the Voluntary Contribution scheme, so that they can build up their CPF
savings.
Furthermore, a parent who has reached their Payout Eligibility Age can also opt not to receive their
monthly CPF payouts under the Retirement Sum Scheme or CPF LIFE, but to retain the monies in their
CPF accounts which will then be channeled to their child (SNTC, 2018).
3c
(i) CPF Account Balance to her sister.
Pong should include a CPF nomination under her sister’s name to ensure that the balance is distributed
to her sister in case of death.
(ii) Savings and Shares to charity.
Pong should ensure that the name of the institutions to which she wants to contribute to, plus the
amount, have been named under her will.
(iii) Insurance Policies’ Proceeds to Julian Lim and Matthew.

Pong should ensure the beneficiaries listed in her life policies are updated to Julian Lim and Matthew
3(d) Actions Poh Eng can take to address the estate planning needs of her mother and children
 Pong should identify a list of assets, including investments, policies, retirement savings,
real estate and/or business interests which will be shared among her mother and
children..
 She should then consider making a will or trust.
 The will should have an executor in charge of distributing her property and filing tax
returns on behalf of the estate.
 She should also consider picking a guardian for her children in case she passes.
 Pong should also discuss her plans with her beneficiaries as soon as possible. The
purpose of this is to avoid disagreements in the future.
 Last she should update her will on a regular basis (TIME MONEY, 2018).
References
Inestopedia. (2018, October). Investopedia. Retrieved from Definition Uberrimae Fidei:
https://www.investopedia.com
Kuhn, M. (2018, April 4). Two Types of Waiver of Premium Benefit Rider. Retrieved from GLG America:
https://www.glgamerica.com/waiver-of-premium/
SNTC. (2018, October). Special Needs Savings Scheme. Retrieved from SNTC: https://www.sntc.org.sg
TIME MONEY. (2018). 10 Steps to Painles Estate Planning. Retrieved from Money:
https://www.time.com/money/