money & saving wong to yeung (leo) wong ka wang (kelvin) lai chung yin (roy)
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Money & saving
WONG To Yeung (Leo)
WONG Ka Wang (Kelvin)
LAI Chung Yin (Roy)
When you were young …
Did you save? How did you save? Why did you save?
What are we going to do?
How to calculate interest? MPF scheme Comparison between different saving
methods
Saving in a bank
Saving account Advantage
- safe- convenient- earn interest
What is interest?
Reward for your saving Interest rate
expressed in per annum rate
1.Simple interest
E.g.1If you save $100 into the bank at 1% pa for 2 years, theninterest = 100*1%*2=$2amount = 100+2 = $102
2.Compound interest
E.g. 2If you save $100 into the bank at 1% pa for 2 years, compounded yearly, thenamount = 100*(1+1%)2 = $102 .01 interest = 102.01-100 =$2.01 More interest!!!
Make a guess….
You have won the sixth prize of Mark Six
$320
How much will you have saved, if …..1, compounded monthly at 2% pa2, save it for 30 year
Answer
$582.8 Almost double
Do you think it is large?
How about this…?
Suppose you will win the sixth prize of Mark Six EVERY months in the coming 30 year
How much will you have saved, if …..1, compounded monthly at 2% pa2, save it for 30 year
How to calculate?
Amount accumulated by 1st sixth prize= $320*(1+2%/12)30*12
Amount accumulated by 2nd sixth prize= $320*(1+2%/12)30*12-1
Amount accumulated by 3rd sixth prize= $320*(1+2%/12)30*12-2
…..
How to calculate?
Amount accumulated by last sixth prize= $320*(1+2%/12)
Total amount accumulated= 320*(1+2%/12)30*12 + 320*(1+2%/12)30*12-1 +…+320 *(1+2%/12) =$157935
Big or small???
Total interest = 157935 – 320*30*12
= $42735
About 37% of the principle
What is MPF?
Mandatory Provident Fund Launched in 2000 Coverage:
- employee OR self-employed- aged 18 to 65- living and working in HK
Monitored by MPFA
How MPF works?
Regular contributionfor retirement
Max = $20,000Min = $5,000
How MPF works?
Five types of funds:1, Money market fund2, Guaranteed fund3, Bond fund4, Mixed assets fund5, Equity fund
Reality
Inflationgeneral increase in price levelmeasured by inflation rate
management fee
Include the reality Recent annual inflation rate = 0.17% Average monthly management fee = 1.81% Annual rate of return=10% Monthly contribution = $1000 Working for 35 years
So, monthly effective interest rate = (10%/12)(1-0.17%)(1-1.81%)= 0.8168590%
Include the reality
Amount that you can get when you retire= $3,637,675 (homework!!)
How about if we only save for 20 years?Amount that you can get when you retire= $746, 231 (homework!!)
Conclusion: it’s never too early to start!
$6000 cash: How to spend ?
What you may think of …Lazy and stupid not to save Hardworking and wise to save
4.Saving
Cash – at home Ordinary savings account in bank Investment Insurance
i.Saving – Cash at home
Useful Essential Convenient Easy come easy go
ii.Savings account
HSBC, Heng Sang Bank … < $5000 -> 0%, -$50/month >= $5000 -> 0.001% annual Eg. $6000 -> 10 years
how much will be saved ? Depreciate …
iii.Investment
To choose which stock / bond ? Link:
http://hk.myblog.yahoo.com/stevetso/article?mid=373
Gain / loss ? Risk - Fluctuation in market High risk - high return
iv.Endowment Insurance
5, 10, 20 - year scheme Fixed payment – premium (>$1000) Pay annually until maturity day Interest plus dividend each annum Death protection & personal saving
China Life Insurance5-Year Treasure Insurance Plan
No investment, no return
wealth security Insurance period : 5 years Single premium pa Guaranteed dividend rate :
>2% of single premium
Which is the best ? Suppose HK$100,000 , to save from today
to 13/4/2016 (5 years)… no inflation or currency effect If save at home, still $100,000 If save at bank account,
amount = 100,000(1+0.001%/12)5*12
= $100,005.00
Insurance approach Assume dividend rate = 2% of single
premium, interest rate = 3% pa Single premium = 100,000/5 yr
= $20,000 14/4/11: $20,000 13/4/16: A1 = 20,000(1+3%/12)12(1+2%)
13/4/15: [20,000(1+3%/12)12(1+2%)] (1+3%/12)12
A2 = 20,000(1+2%)[(1+3%/12)12]2
13/4/14: A3 = 20,000(1+2%)[(1+3%/12)12]3
13/4/13: A4 = 20,000(1+2%)[(1+3%/12)12]4
13/4/12: A5 = 20,000(1+2%)[(1+3%/12)12]5
Sum of GS S(n) = a (rn-1) / (r-1)
Let r = (1+3%/12)12 = 1.030416 Sum = A5 + … + A1 Sum = 20000(1+2%)r(1+r2+r3++r4)
= 20000(1+2%)r (r5-1) / (r-1)
= $111693.45
Hope you find it useful !
Thank You!
Homework 1, Complete the calculations in slide 19. 2, Could you design a saving plan for
yourself so that you can get $5,000,000 after 30 years? You can use the information in slide 18
Extra: Do you support the government directly giving $6,000 to every HK people? Why?
Online discussion Do you think you are saving enough? Why
or why not? Do you support the introduction of MPF
scheme? Why?
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