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Your client spends $2000 per month on living expenses, including mortgage on his property
worth $800,000, with a balance of $300,000 owing at interest rate of 6%. His current bank
deposit is $30,000 and he earns 5% APR on his deposit. He wants to buy a car costing
$20,000 with estimated residual value of $7000 at end of 36 months and he is presented
with the option of buying the car outright with cash or finance at 8% interest rate per annum for 36 months with deposit of $2000. Your client currently earns $70,000 a year, paid
monthly, and expects to earn $90,000 if he can get a master degree. Income tax is 28%. If he
studies towards a master degree now, he will be without income for two years and will have
to pay $5,000 non tax deductable course related fees per semester for two years. There are
two 6-month semesters per year. For his retirement, he wants to retire on his 75th birthday and he is looking at two investment products (correlation between two asset is 0.5)
consisting of 15% return on shares (variance of 225, or a standard deviation of
if converted at the same unit as reported returns) and 10% on bonds (variance of 90, or a
standard deviation of
90/10000 if converted at the same unit as reported returns), and
being a conservative investor, he would like to minimize his risk using combination of these
two assets.
Your client expects he will need $6000 per month by the time he is 75 and he expects to
sell his home for 1.4 million dollars and move into an apartment cost $800,000. He will
1also put any money he has in low risk investment by that time, earning APR of 3%. He
also plans to have assisted living once he reaches 85 to 90, with cost being approximately
$10,000 per month. He would also like to have $10,000 to cover his final expenses by the
time he reaches 90. He would like to know how much money he needs to put aside into
investment fund at end of every month, beginning end of this month, so he can reach his
retirement objective. The client is also aware of investment variability for his portfolio and
would like to have some information as to the amount of money he needs to put aside per
month in case the investment over or under deliver the expected return.

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