MTC Day 2 - TVM

MTC -
Cash Flow & Net Worth Management

Time Value of Money (TVM)
Participant’s Guide
1
Classification: For Internal and Training Use Only MTC_Day 2_v3.0 as at April 2020
Disclaimer
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public.
2
Cash Flow Statement &
Net Worth Statement
Cash Flow Management
Cash-flow management is one of the most basic tool in financial planning.

It is especially helpful when you need to accomplish any of the objectives :
• control household expenses
• achieve desired wealth accumulation for specific needs
8
Why personal cash flow is important?
Cash flow is important whether you are in the accumulation phase of your
life or in the distribution phase.
For example, if you're in the accumulation phase, you're likely to reinvest the
dividends or interest to help build up your account value.
9

There are two types of personal cash
flow you want to track
Positive cash Negative cash

flow covers all flow gets you
expenses into debt
The idea of a personal cash flow management system is to see where your
exact cash flow lies and adjust accordingly. And, of course, the ultimate goal is
to have a positive cash flow.
10
A personal cash flow statement measures your cash inflows and outflows in
order to show you your net cash flow for a specific period of time.
Inflow Outflow
 Net Income  Household  Medical/Dental/Healthcare

(Gross Income –EPF –SOCSO –Tax) Expenses  Parent Care
• Food/Groceries  Entertainment/Travelling
 Other Income • Utilities  Clothing/Personal
• Interest (Electricity/Water/ Grooming
• Dividend Gas/Telephone)  Travelling Expenses
• Rental (Petrol/Toll/Parking)
• Business  Children Expenses  House Maintenance
• Education  Car Maintenance
(Tuition/School  Savings/Investments
Fees)  Repayment (Car Loan/
• Baby sitter/ Mortgage)
Nursery  Insurance Premium
Period: Monthly, Quarterly, Half Yearly or Annually
11

Sample of Cash Flow Statement
a) My own 8,000
b) My spouse
50
1,200
1,000
10,250
12
1,000
400
280
600
50
100
500
300
400
200
200
11. Savings and Investments 500

12. Car soan Repayment 850
13. Mortgage Repayment 1,000
13

14. Insurance Premium

a) My own 400
b) My spouse 200
c) My Children 200
d) Other
7,180
3,070
14
Net Worth
Net worth is the amount by which your assets exceed your liabilities.
Net worth = Value of Assets – Value of Liabilities
In the nutshell, net worth is the difference between what you own and
what you owe. If your assets exceed your liabilities, you have a positive
net worth. Conversely, if your liabilities are greater than your assets,
you have a negative net worth.
15
Assets & Liabilities

Cash/Cash Equivalents Short-Term Liabilities
• Life insurance cash values • Credit card outstanding
• Fixed deposit • Personal loans/overdrafts
LIABILITIES
• Savings account • Short-term borrowings

• Current account • Annual tax payable
ASSETS
Investment Assets Personal-used assets Long-Term Liabilities (>1 Year)

• EPF account balance • Jewelleries/Collectibles • Residential property mortgage
• Fixed Income securities • Home content • Investment property mortgage
• Islamic investment • Home • Car loan
• Equities/Shares • Car • Hire purchase
• Commodities • Personal loan/overdrafts
• Real estates • Education/study loan
• Unit trusts
• Derivatives
• Jewelleries/Collectibles
16
Net Worth Management
Sample of Net Worth Statement
50,000
200,000
350,000
600,000
300,000
10,000
20,000
420,000
80,000
830,000
400,000
50,000 450,000
1,880,000
17
Net Worth Management

Sample of Net Worth Statement
15,000
15,000
150,000
300,000
20,000
48,000
518,000
533,000
1,347,000
18
Financial Screening
Workout your own Cash Flow Statement

20
Workout your own Net Worth Statement
21
Analyze your financial statements

Analyze your cash flow statement
Inflow – Outflow = Net Cash Flow (+ive or –ive)
• A positive net cash flow = you earned more than you spent
• You have some money leftover from that period
• A negative net cash flow = you spent more than you earned
• You do not have leftover from that period
• Be alert because you are on the road of financial oblivion,
with each passing month you will grow poorer
24
Manage your cash flow
• You’re in the best shape of all to set sail for a bright horizon.
• Raise both your active and passive cash inflows to hasten
your progress.
• Temporarily reduce your cash outflows through delayed
gratification.
• Be objective and discover your financial needs.
• Start your investment plans to meet your financial goals.
25
Manage your cash flow
• Slow bleed of your net worth

• Your existing savings will be exhausted in long run
• Potentially borrow from others (family members/ friends/ banks
etc.)
• Assess your spending habits. Stop overspending but spend wisely!
• Increase your source of income
• Revisit monthly commitment
26
Analyze your net worth statement
Net worth = Value of Assets – Value of Liabilities
• A positive net worth = you own more than you owe
• A negative net worth = you owe more than you own
27
How to increase your net worth?
Increase Assets 1. Increase cash 1. Reduce/ eliminating

debts, pay off debt with
2. Increase value of highest interest rates
asset own first
Decrease Liabilities
3. Sell off any unused 2. Refinancing from high
assets that cause interest loan to lower
depreciation rate
4. Save/ invest 3. Change your insurance
premium payment plan
4. Cutting up your credit
cards
28
How result of net cash flow impact net worth?

Example:
Positive net cash flow
1. Assets increase
• retain the positive cash flow to keep cash, save or invest.
• all these are additions to assets, since liabilities remain unchanged. Hence, asset increased
2. Liabilities reduce
• use positive cash flow to pay down more of your debts and loan
• since owe less debts, ownership of assets increased
Negative net cash flow

1. Assets reduce
• sell off the whole or part of assets to fund out flow
• assets are reduced
2. Liabilities increase
• take up personal loans, credit card debts or other loans for cash outflow.
• these increase liabilities
29
Time Value of Money
Time Value of Money

Basic Concept of Time Value of Money
The RELATIONSHIP
between the value of money today and the
value at some other point in the future.
31
Time Value of Money
Basic Concept Principal And Interest
Principal: The amount of money saved, invested or

borrowed. It is the beginning amount.
Interest: The return on the principal amount.
32
Time Value of Money

Basic Concept Principal And Interest
3 Elements to determine interest earnings:

• The principal amount
• The rate of interest
• The time period
Interest = Principal x Rate of Interest x Time
33
Time Value of Money
Concept Of Simple And Compound Interest
Simple Interest : Interest paid each time on principal only.

Compound Interest : Interest paid each time on principal and
accumulated interest.
34
Time Value of Money

Concept of Simple Interest
Example of car loan
If the car costs RM140,000 and you make a down payment of RM20,000 you are effectively
borrowing RM120,000 from the hire-purchase company. If say the interest charged is 4%
and the period of hire purchase is 5 years the monthly installments are calculated as follows:
Calculation:
Step 1: Calculate interest
RM120,000 x 4%=RM4,800/year
Step 2:Interest for 5 years

RM4800 x 5=RM24,000
Step 3: Full payment

RM120,000+RM24,000=RM144,000
Step 4: Monthly loan repayment

RM144,000/60=RM2,400/month
The RM144,000 is the full payment and when divided by the number of months gives you a
monthly payment of RM 2,400.
35
Time Value of Money
Interest paid each time on PRINCIPAL only
Year Principal Interest Rate Amount Earned
1 100 10% 100 + 10 = 110
2 100 10% 110 + 10 = 120
3 100 10% 120 + 10 = 130
4 100 10% 130 + 10 = 140
36
Time Value of Money
Interest paid each time on PRINCIPAL and ACCUMULATED INTEREST
Year Principal Interest Rate Amount Earned
1 100 10% 100 + 10 = 110
2 110 10% 110 + 11 = 121
3 121 10% 121 + 12.1 = 133.1

133.1 + 13.31 =
4 133.1 10%
146.41
37
Time Value of Money
Concept of Compound Interest
There are only five variables in compound interest calculations. They are:
N number of compounding periods(Yearly, Semi-annually, Quarterly,

Monthly)
I annual interest rate applicable
PV Present Value
PMT payment per period
FV Future Value
38
Time Value of Money

Compounding
Today N= Period I=Interest Future

(Present Value, PV) (Future Value, FV)
Discounting
39
Time Value of Money
Compounding Single Sums
N= Period I=Interest
Today Future
Translate RM10 today into its equivalent in

the future
?
40
Time Value of Money

(Future Value-Single Sums)
Exercise 1 If you deposit RM100 in an account and earns 6% a year, how
much would you have in the account after 5 year?
N=5 I=6%
Solution:
PV HP10BII Casio FC-100V (CMPD) TVM Apps FV ?
-100 Step 1: Shift C Set : BEGIN/END PV : -100 133.82
Step 2: 1 Shift P/YR N :5 PMT :0
Step 3: BEGIN/END FV : SOLVE
I% :6
Step 4: 5 N RATE : 6
PV : -100
Step 5: -100 PV PERIOD : 5
PMT : 0
Step 6: 6 I/YR COMP : ANNUALLY
Step 7: FV FV : SOLVE MODE :BEGIN/END
Answer: 133.82 Answer: 133.82 Answer: 133.82
41
NOTE: All the information stated are based on assumption. This case study is created for training purpose only.
Time Value of Money
(Future Value-Single Sums)
Exercise 2 To find the future value of a single sum of RM10,000 placed in
an investment that earns 8% a year and left to compound for 10
years will give the following future value:
N=10 I=8%
Solution:
FV ?
HP10BII Casio FC-100V (CMPD) TVM Apps
PV
Step 1: Shift C Set : BEGIN/END PV : -10,000
-10,000 21,589.25
Step 2: 1 Shift P/YR PMT :0
N : 10
I% :8
Step 4: 10 N RATE : 8
PV : -10,000
Step 5: -10,000 PV PERIOD : 10
PMT : 0
Step 6: 8 I/YR COMP : ANNUALLY
FV : SOLVE
Step 7: FV MODE : BEGIN/END
Answer: 21,589.25 Answer: 21,589.25 Answer: 21,589.25
42 NOTE: All the information stated are based on assumption. This case study is created for training purpose only.
Time Value of Money
Today Future
? Translate RM10 in the future into its equivalent

today
N= Period I=Interest
Discounting Single Sums

43
Time Value of Money
(Present Value-Single Sums)
Exercise 1 If you will receive RM100 one year from now, what is the PV of that
RM100 if your interest rate is 6%p.a?
N=1 I=6%
Solution:
PV ? HP10BII Casio FC-100V (CMPD) TVM Apps FV

Step 1: Shift C Set : BEGIN/END PV : SOLVE 100
-94.34
Step 3: BEGIN/END FV : 100
I% :6
Step 4: 100 FV RATE :6
PV : SOLVE
Step 5: 6 I/YR PERIOD : 1
PMT : 0
Step 6: 1 N COMP : ANNUALLY
Step 7: PV FV : 100 MODE :BEGIN/END
Answer: -94.34 Answer: -94.34 Answer: -94.34
44
Time Value of Money

(Present Value-Single Sums)
Exercise 2 If you will receive RM10,000 five years from now, what is the PV of
that RM10,000 if your interest rate is 5%p.a?
N=5 I=5%
Solution:
PV ? HP10BII Casio FC-100V (CMPD) TVM Apps FV
-7,835.26 Step 1: Shift C Set : BEGIN / END PV : SOLVE 10,000
Step 3: BEGIN/END FV : 10,000
I% :5
Step 4: 10,000 FV RATE : 5
PV : SOLVE
PMT : 0
Step 6: 5 N COMP : ANNUALLY
Step 7: PV FV : 10,000
MODE : BEGIN /END
Answer: -7,835.26 Answer: -7,835.26 Answer: -7,835.26
45
Time Value of Money
(I=Interest)
Exercise 3 If you sold an antique for RM11,933 that you bought 5 years ago for
RM5,000, what is your annual rate of return?
N=5 I=? 19 %
Solution:
PV HP10BII Casio FC-100V (CMPD) TVM Apps FV
-5,000 Step 1: Shift C Set : BEGIN/END PV : -5,000 11,933
Step 3: BEGIN/END I% : SOLVE FV : 11,933
Step 4: 5 N RATE : SOLVE
PV : -5,000
PMT : 0
Step 6: 11,933 FV COMP : ANNUALLY
FV : 11,933
Step 7: I/YR MODE : BEGIN/END
Answer: 19% Answer: 19% Answer: 19%
46
Time Value of Money

(I=Interest)
Exercise 4 If you sold a house for RM500,000 that you bought 5 years ago for
RM305,000, what is your annual rate of return?
N=5 I= ? 10.39%
Solution:
Step 3: BEGIN/END I% : SOLVE FV : 500,000
Step 4: 5 N RATE : SOLVE
PV : -305,000
PMT : 0
Step 6: 500,000 FV COMP : ANNUALLY
Step 7: I/YR FV : 500,000
MODE : BEGIN/END
Answer: 10.39% Answer: 10.39% Answer: 10.39 %
47
Time Value of Money
(“N”=Number of Period)
Exercise 5 Suppose you placed RM100 in an account that pays 9.6% interest,
compounded yearly. How long will it take for your account to grow to
RM500?
N= ? 17.56 years I=9.6% yearly
Solution:
-100 Step 1: Shift C Set : BEGIN/END PV : -100 500
Step 2: 1 Shift P/YR N : SOLVE PMT :0
Step 3: BEGIN/END I% : 9.6 FV : 500
Step 4: 500 FV RATE : 9.6
PV : -100
Step 5: -100 PV PERIOD : SOLVE
PMT : 0
Step 6: 9.6 I/YR COMP : YEARLY
FV : 500
Step 7: N MODE : BEGIN/END
Answer: 17.56 years Answer: 17.56 years Answer:17.56 years
Time Value of Money

(“N”=Number of Period)
Exercise 6 Suppose you placed RM10,000 in an account that pays 4% interest, compounded
yearly. How long will it take for your account to grow to RM25,000?
N= ? 23.36 years I=4%,yearly

Solution:
Step 3: BEGIN/END I% :4 FV : 25,000
Step 4: 25,000 FV PV : -10,000 RATE : 4
Step 5: -10,000 PV PERIOD : SOLVE
PMT : 0
Step 6: 4 I/YR COMP : YEARLY
FV : 25,000
Answer: 23.36 years Answer: 23.36 years Answer: 23.36 years
Time Value of Money
Compounding Frequency
We have already computed a single sum when the
compounding frequency was one.
We shall now proceed to demonstrate the computations where the

compounding frequency is more than one
There are only five variables in compound interest calculations. They are:
N Number of compounding periods(Yearly, Semi-annually, Quarterly, Monthly)

I Annual interest rate applicable
PV Present Value
PMT Payment per period
FV Future Value
50
Time Value of Money

Exercise 1 Suppose you placed RM100 in an account that pays 9.6% interest, compounded
monthly. How long will it take for your account to grow to RM500?
N= ? 202 months I=9.6%, monthly

Solution:
-100 Step 1: Shift C Set : BEGIN/END PV : -100 500
Step 3: BEGIN/END I% : 0.8 (9.6/12) FV : 500
Step 4: 500 FV PV : -100 RATE : 9.6
Step 5: -100 PV PMT : 0 PERIOD : SOLVE
Step 6: 9.6 I/YR COMP : MONTHLY
FV : 500
Answer: 202 months Answer: 202 months Answer: 202 months
Time Value of Money
Exercise 2 Assuming you deposit RM10,000 in a bank and earn 4% p.a., compounded
on a MONTHLY basis. How much will you have after 10 years?
Solution:
Step 2: 12 Shift P/YR N : 120 (10x12) PMT :0
Step 3: BEGIN/END I% : 0.3333 (4/12) FV : SOLVE
Step 4: 10,000+/- PV PV : -10,000 RATE :4
Step 5: 4 I/YR PERIOD : 120 (10X12)
PMT : 0
Step 6:10 shift N COMP : MONTHLY
FV : SOLVE
52
Time Value of Money

Exercise 3 Assuming you invest RM10,000 in an unit trust fund with a projected returns
of 8% p.a., compounded on a QUARTERLY basis. How much will you have
after 10 years?
Solution:
Step 1: Shift C Set :BEGIN/END PV : -10,000
I% : 2(8/4)
Step 4: 10,000+/- PV RATE :8
PV : -10,000
Step 5: 8 I/YR PERIOD : 40 (10x4)
PMT : 0
Step 6:10 Shift N COMP : QUARTERLY
Step 7: FV FV : SOLVE MODE : BEGIN/END
53
Time Value of Money
Exercise 4 Assuming you are age 30 today and would like to have RM1 million by the
time you retire at age 55, how much must you deposit in the bank today,
assuming an interest rate of 4% p.a., compounded on a HALF-YEARLY basis?
Solution:
Step 1: Shift C Set : BEGIN/END PV : SOLVE
Step 3: BEGIN/END I% : 2 (4/2) FV : 1,000,000
Step 4: 1,000,000 FV RATE :4
PV : SOLVE
Step 5: 4 I/YR PERIOD : 50 (25x2)
PMT : 0
Step 6: 25 shift N COMP : HALF-YEARLY
Step 7: PV FV : 1,000,000 MODE : BEGIN/END
54
Time Value of Money

Exercise 5 Assuming you are age 30 today and would like to have RM1 million by the
time you retire at age 55, how much must you invest today in an unit trust
fund with a projected return of 8% p.a., compounded on a DAILY basis?
Solution:
Step 2: 365 Shift P/YR N : 9,125 (25x365) PMT :0
Step 3: BEGIN/END FV : 1,000,000
I% : 0.0219 (8/365)
Step 4: 1,000,000 FV RATE :8
PV : SOLVE
Step 5: 8 I/YR PERIOD : 9,125 (25x365)
PMT : 0
Step 6: 25 Shift N COMP : DAILY
Step 7: PV FV : 1,000,000
MODE : BEGIN/END
55
Time Value of Money
Ordinary Annuity &Annuity Due
Computing Future Values : Ordinary Annuity & Annuity Due
A series of
A series of
equal
Annuity equal
A series of payments or
payments or Ordinary Annuity receipts
constant cash
receipts Annuity Due made or
flows paid or
made or received at
received at regular
received at the
time interval
the end of beginning of
each period. each period.
56
Time Value of Money

Ordinary Annuity &Annuity Due
Ordinary Annuity Annuity Due
Payment at End of Term Payment at Beginning of Term
PV PV
0 1 2 3 4 5
0 1 2 3 4 5
PMT
PMT FV
FV
Example: Example:
• Salary • Insurance premium
• Loan Repayment & etc • Education fees
• Rental & etc
57
Time Value of Money
Ordinary Annuity
Exercise 1 Assuming you deposit RM10,000 per year in a bank & earn 4% p.a.
How much will you have after 10 years, assuming you begin a year later?
Solution:
Step 1: Shift C Set : END PV :0
Step 2: 1 Shift P/YR N :10 PMT : -10,000
Step 3: END I% :4 FV : SOLVE
Step 4: 10,000 +/- PMT RATE :4
PV :0
PMT : -10,000
Step 6: 10 N COMP : YEARLY
Step 7: FV FV : SOLVE MODE : END
58
Time Value of Money

Ordinary Annuity
Exercise 2 Assuming your salary is RM5,000 a month. Therefore, your annual income is
RM60,000. Your EPF contribution would be 11% plus 12% = 23% of salary.
Therefore, your annual contribution is RM13,800. Assuming you have 20 years
more to retire. Let us further assume that EPF will continue to offer a 5% p.a.
rate of return. How much do you have in your EPF when you retire?
Solution:
Step 1: Shift C Set : END PV :0
Step 2: 1 Shift P/YR N : 20 N PMT : -13,800
Step 3: END I% :5 FV : SOLVE
Step 4: 13,800 +/- PMT PV : 0 RATE :5
Step 5: 5 I/YR PMT : -13,800 PERIOD : 20
Step 6: 20 N FV : SOLVE COMP : YEARLY
Step 7: FV MODE : END
Time Value of Money
Ordinary Annuity
Exercise 3 Ms. Jenny is promised a stream of cash flows of RM1,000 per year for 3
years starting 12 months from now. If 5% a year is her required rate of
return, what is the present value of these future cash flows?
Solution:
Step 1: Shift C Set : END PV : SOLVE
Step 2: 1 Shift P/YR N :3N PMT : -1,000
Step 3: END I% :5 FV :0
Step 4: 1,000 +/- PMT PV : SOLVE RATE : 5
Step 6: 3 N FV :0 COMP : YEARLY
Step 7: PV MODE : END
60
Time Value of Money

Ordinary Annuity
Exercise 4 If the loan installment should not exceed 35% of the borrower’s monthly
income and the interest rate is 6% a year compounding monthly, how
much can be borrowed if the borrower’s income is RM10,000 a month and
based on a loan tenure of 15 years?
Solution:
Step 2: 12 Shift P/YR N : 180 (12x15) PMT : -3,500
Step 3: END I% : 0.5 (6/12) FV :0
Step 4: 3,500 +/- PMT PV : SOLVE RATE :6
Step 5: 6 I/YR PMT : -3,500 PERIOD : 180 (15x12)
Step 6: 15 Shift N FV :0 COMP : MONTHLY
61
Time Value of Money
Annuity Due
Exercise 5 There are 2 investment plans, X and Y. Plan X involves setting aside RM500
at the beginning of every quarter for 10 years. Plan Y requires an amount
of RM250 at the beginning of each quarter for 20 years. If the rate of
return is 9% a year compounded quarterly, which plan provides a higher
return?
Solution: Plan X
Step 1: Shift C Set : BEGIN PV :0
Step 2: 4 Shift P/YR N : 40 (10x4) PMT : -500
Step 3: BEGIN I% : 2.25 (9/4) FV : SOLVE
Step 4: 500 +/- PMT PV :0 RATE :9
Step 5: 9 I/YR PMT : -500 PERIOD : 40 (10x4)
Step 6: 10 Shift N FV : SOLVE COMP : QUARTERLY
Step 7: FV MODE : BEGIN
62
Time Value of Money

Annuity Due
Exercise 6 There are 2 investment plans, X and Y. Plan X involves setting aside
RM500 at the beginning of every quarter for 10 years. Plan Y requires an
amount of RM250 at the beginning of each quarter for 20 years. If the
rate of return is 9% a year compounded quarterly, which plan provides a
higher return?
Solution: Plan Y
Step 2: 4 Shift P/YR N : 80 (20x4) PMT : -250
Step 3: BEGIN I% : 2.25 (9/4) FV : SOLVE
Step 4: 250 +/- PMT PV :0 RATE :9
Step 5: 9 I/YR PMT : -250 PERIOD : 80 (20x4)
Step 6: 20 Shift N FV : SOLVE COMP : QUARTERLY
Step 7: FV Plan Y MODE : BEGIN
63
Time Value of Money
Annuity Due
Exercise 7 George plans to retire with an annual income of RM125,000 each year for
a period of 25 years. Compute the total fund required, if the retirement
fund is earning 5% at the distribution phase.
Solution:
Step 1: Shift C Set : BEGIN PV : SOLVE
Step 2: 1 Shift P/YR N : 25 PMT : -125,000
Step 3: BEGIN I% :5 FV :0
Step 4: 125,000 +/- PMT PV : SOLVE RATE :5
Step 7: PV MODE : BEGIN
Answer: 1,849,830.22 Answer: 1,849,830.22 Answer: 1,849,830.22
64
Time Value of Money

Annuity Due
Exercise 8 If A owns a commercial building and have just signed a 3 year lease
agreement for a monthly rental of RM500,000 with the rental payable at the
beginning of the month. The rental is used to reduce the bank borrowing at
9% a year compounded on a monthly basis? How much would the value of
the rental stream be?
Solution:
HP10BII z Casio FC-100V (CMPD) TVM Apps
Step 2: 12 Shift P/YR N : 36 (3X12) PMT : -500,000
Step 3: BEGIN I% : 0.75 (9/12) FV :0
Step 4: 500,000+/- PMT PV : SOLVE RATE :9
Step 5: 9 I/YR PMT : 500,000+/- PMT PERIOD : 36 (3X12)
Step 6: 3 Shift N FV :0 COMP : MONTHLY
Answer: 15,841,328.15 Answer:15,841,328.15 Answer: 15,841,328.15
Time Value of Money
Annuity Due
Exercise 9 You have to pay college fees at the beginning of each semester. Each
semester is 6 months. The fees are RM10,000 each semester. There are 6
semesters. How much must you accumulate at the beginning of college to
meet these fees? You realize that you can earn 8% p.a. on the college
education fund that you have accumulated.
Solution:
Step 3: BEGIN I% : 4 (8/2) FV :0
Step 4: 10,000 +/- PMT RATE : 4 (8/2)
PV : SOLVE
PMT : -10,000
Step 6: 6 N COMP : HALF YEARLY
FV :0
66
Adjusted Interest Rate

Computing Inflation-Adjusted Inflation Rate
Formula =
Note:
– interest rate, expressed in terms of absolute numbers
/ – inflation or growth rate, expressed in terms of absolute numbers
%/ % – is the inflation or growth rate, expressed in terms of a decimal
• To measure the actual interest rate/rate of return earned after adjusting for
inflation
• To measure the adjusted real return on growing contributions from an
investment
67
Exercise 1
Investment Rate of Return = 8% ; Inflation Rate = 4%

Adjusted r–i
=
Interest Rate
1 + i%
8–4
=
1 + 0.04
4
=
1.04
= 3.8462%
68
NOTE: All the information stated are based on assumption. This exercise is created for training purpose only.

Exercise 2
Investment Rate of Return = 10% ; Inflation Rate = 5%

Adjusted r–i
=
Interest Rate 1+i%
10 – 5
=
1 + 0.05
5
=
1.05
= 4.7619%
69
Exercise 3
EPF Dividend Rate = 6.6% ; Salary Increment Rate = 10%
Adjusted r–g
=
Interest Rate 1+g%
6.6 – 10
=
1 + 0.10
-3.4
=
1.10
= -3.0909%
70

Exercise 4
FD Interest Rate = 3% ; Inflation Rate = 5%
Adjusted r–i
Interest Rate =
1+i%
3–5
=
1 + 0.05
-2
=
1.05
= -1.9048%
71
Exercise 5 Assuming the client wants RM108,000 retirement income per annum. His
life expectancy is say 20 years after retirement. He wants his income to
increase every year by 4%. His investment performance is 8% per annum.
How much Present Value sum must he accumulate for his retirement?
Solution:
Step 2: 1 Shift P/YR N : 20 PMT : 108,000 +/- PMT
Step 3: BEGIN I% : 3.8462 FV :0
Step 4: 108,000 +/- PMT [(8- 4/1+0.04) = 3.8462] RATE : 3.8462
Step 5: 3.8462 I/YR [(8- 4/1+0.04) = 3.8462]
PV : SOLVE
[(8- 4/1+0.04) = 3.8462] PERIOD : 20
PMT :108,000 +/- PMT
FV :0
Answer: 1,545,178.23 Answer: 1,545,178.23 Answer : 1,545,178.23
Cash Flow
Constant Growth Cash Flow Model
To compute the future values in cases where the

amount of the initial investment grows at a
constant rate during the entire accumulation phase
73
Cash Flow
Exercise 1 Assuming you deposit RM1,000 per year into your bank account today and
increase the amount of savings by 10% at the beginning of the next 4
years. How much would you have at the end of the 5th year assuming the
interest rate is 5% p.a.?
FV = ??
i= 5-10 = -4.5455
1 + 0.1
PMT = -1,000
Year 1 Year 2 Year 3 Year 4 Year 5

N=5
74
Cash Flow
Step 1: Compute the Adjusted I
Adjusted I = r – g
(r+ g%)
Note: I – interest rate, expressed in terms of absolute numbers
g – growth rate, expressed in terms of absolute numbers
Example:
Adjusted I = 5 – 10
1 + 10%
= -5
1.1
= - 4.5455
75
Cash Flow
Step 2: Compute the Present Value of the Growing Annuity (PVGA)
Solution:
Step 3: BEGIN I% : -4.5455 FV :0
Step 4: 1,000 +/- PMT PV : SOLVE RATE : -4.5455
Step 5: 4.5455 +/- I/YR PMT : -1,000 PERIOD : 5
FV :0
76
Cash Flow
Step 3: Compute the Future Value of a single sum (FVSS)
Solution: FV = ??
i=5
PV = -5,499.42 Year 1 Year 2 Year 3 Year 4 Year 5
N=5
77
Cash Flow
Step 3: Compute the Future Value of a single sum (FVSS)
Solution:
HP10BII Casio FC-100V TVM Apps
Step 1: Shift C Set : BEGIN/END PV : -5,499.42
Step 3: BEGIN/END I% :5 FV : SOLVE
Step 4: -5,499.42 PV RATE :5

PV : -5,499.42
PMT : 0
COMP : YEARLY
Step 6: 5 N
FV : SOLVE
MODE : BEGIN/END
Step 7: FV
78
Uneven Cash Flow

Computing Future Values: Uneven Cash Flow Streams
Not all cash flows come in even streams as in

ANNUITIES.
Sometimes the cash flows come in UNEVEN
STREAMS
79
Net Present Value
Discounted Cash Flow Techniques: NPV
Present value of the stream of cash

Net Present Value inflows minus the present value of the
stream of cash outflows.
NPV = PV of Cash Inflows – PV of Cash Outflows
• If the NPV is positive, the investment is viable and should be accepted.

• If the NPV is negative, the investment is not viable and should be rejected.
80
Net Present Value

ILLUSTRATION
CF2
PV of CF6
(+) CF1
CF3 CF4
Cash Flow input
PV of
(-)
CF0 CF5
Cash Flow output
When NPV = +ve ; accept investment

When NPV = -ve ; reject investment
81
Net Present Value
Exercise 1 Andy is thinking of buying a condominium for RM170,000. He
plans to let out the condominium for 5 years charging
RM12,000 per year. After which he will sell it at the end of 5
years for RM220,000, hoping to see a yield of 8%. Can Andy
accept this investment?
Step 1 – Draw timeline

n=4
CF1 = CF2 = CF3 = CF4 = CF5 =

RM12,000 RM12,000 RM12,000 RM12,000 RM12,000 + RM220,000
CF0 = - RM170,000
82 NOTE: All the information stated are based on assumption. This exercise is created for training purpose only.
Step 2 – Calculation
Solution:
HP10BII Casio FC-100V (CASH) TVM Apps (IRR NPV Calculator)
Step 1: Shift C I%=8 Discount Rate : 8%
Step 2: 1 Shift P/YR CF1: -170,000 CF 0: -170,000
Step 3: +/- 170,000 CFj CF2: 12,000 CF1: 12,000
Step 4: 12,000 CFj CF3: 12,000 CF2: 12,000
Step 5: 4 shift Nj CF4: 12,000 CF3: 12,000
Step 6: 232,000 CFj CF5: 12,000 CF4: 12,000
Step 7: 8 I/YR CF6: 232,000 CF5: 232,000
Step 8: Shift NPV NPV: SOLVE Calculate
27,640.82
NPV = +ve, accept investment
83
Net Present Value
Exercise 2 Andrew is thinking of investing RM72,000 in new machinery.
If he invests in this machine, it will bring him the following
revenues:
End of Year 1 RM13,000 Loss
End of Year 2 -
End of Year 3 RM28,000
The machine can then be sold at RM27,000 at the end of 6th year.
If Andrew requires a rate of return of 10% p.a., is this a good
investment?
Net Present Value

CF2 = CF3 = CF4 = CF5 = CF6 =

RM0 RM28,000 RM45.000 RM45.000 RM45,000+RM27,000
(+)
CF1 = - RM13,000
(-)
CF0 = - RM72,000
85
Solution:
Step 1: Shift C I % = 10 Discount Rate : 10%
Step 2: 1 Shift P/YR CF1: - 72,000 CF0: -72,000
Step 3: +/- 72,000 CFj CF2: -13,000 CF1: -13,000
Step 4: +/-13,000 CFj CF2: 0
CF3: 0
Step 5: 0 CFj CF3: 28,000
CF4: 28,000
Step 6: 28,000 CFj CF4: 45,000
CF5: 45,000
Step 7: 45,000 CFj 2 Shift Nj CF5: 45,000
CF6: 45,000
Step 8: 72,000 CFj CF6: 72,000
Step 9: 10 I/YR CF7: 72,000
Calculate
Step 10: Shift NPV NPV: SOLVE
36,537.82
86
Discounted Cash Flow Technique:

Internal Rate of Return
Discounted Cash Flow Techniques: IRR
The internal rate of return (IRR) of an

investment is the interest rate that
Internal Rate of equates the present value of the
Return stream of cash inflows to the present
value of the stream of cash outflows.
IRR PV of Cash Inflows = PV of Cash Outflows
• If the IRR is greater than the required return, accept the investment.
• If the IRR is lower than the required return, reject the investment.
87
Exercise 1 Andy is considering between investing in unit trust which gives
him an average annual return of 10% p.a. or buying a house for
RM170,000. He plans to let out the house for 5 years charging
RM12,000 per year. After which he will sell it at the end of 5
years for RM220,000. So, which investment Andy should choose?

n=4
CF1 = CF2 = CF3 = CF4= CF5 =

(+) RM12,000 RM12,000 RM12,000 RM12,000 RM12,000 + RM220,000
( - ) CF0 = - RM170,000
Solution:
Step 1: Shift C CF1: -170,000 CF 0: -170,000
Step 2: 1 Shift P/YR CF2: 12,000 CF1: 12,000
Step 3: +/- 170,000 CFj CF3: 12,000 CF2: 12,000
Step 4: 12,000 CFj CF4: 12,000 CF3: 12,000
Step 5: 4 shift Nj CF5: 12,000 CF4: 12,000
Step 6: 232,000 CFj CF6: 232,000 CF5: 232,000
Step 7: Shift IRR IRR: SOLVE Calculate
Answer: 11.71% Answer: 11.71% Answer: 11.71%
11.71%
He should invest in property
89
Exercise 2 Andrew is thinking of investing RM72,000 in a new machinery with
a loan of 6% p.a. If he invest in this machine, it will bring him the
following revenues:
End of Year 1 RM13,000 Loss

End of Year 2 -
The machine can then be sold at RM27,000 at the end of 6th year.
What is the actual return on this investment? Is this investment worth
investing?

CF2 = CF3 = CF4 = CF5 = CF6 =

(+) RM0 RM28,000 RM45.000 RM45.000 RM45,000+RM27,000
CF1 = - RM13,000
(-) CF0 = - RM72,000
Solution:
HP10BII Casio FC-100V (CASH) TVM Apps (IRR NPV
Step 1: Shift C Calculator)
I%=6
Step 2: 1 Shift P/YR Discount Rate : 6%
CF1: -72,000
Step 3: +/- 72,000 CFj CF 0: -72,000
CF2: -13,000
Step 4: +/-13,000 CFj CF1: -13,000
CF3: 0
Step 5: 0 CFj CF2: 0
CF4: 28,000
Step 6: 28,000 CFj CF3: 28,000
CF5: 45,000 CF4: 45,000
Step 7: 45,000 CFj 2 Shift Nj
CF6: 45,000 CF5: 45,000
Step 8: 72,000 CFj
Step 9: 6 I/YR CF7: 72,000 CF6: 72,000
Step 10:Shift NPV NPV: SOLVE Calculate
Answer: 59,273 Answer: 59,273 Answer: 59,273
59,273
92
Solution:
Step 1: Shift C CF0: - 72,000 CF0: -72,000
Step 2: 1 Shift P/YR CF1: -13,000 CF1: -13,000
Step 3: +/- 72,000 CFj CF2: 0
CF2: 0
Step 4: +/-13,000 CFj CF3: 28,000
CF3: 28,000
Step 5: 0 CFj CF4: 45,000
CF4: 45,000
Step 6: 28,000 CFj CF5: 45,000
CF5: 45,000
Step 7: 45,000 CFj 2 Shift Nj CF6: 72,000
CF6: 72,000
Step 8: 72,000 CFj Calculate
Step 9: Shift IRR IRR: SOLVE
Answer:19,11% Answer: 19.11% Answer: 19.11%
19.11%
He can go ahead to buy the machine
93
Establish and Define the
Relationship with the Client
Establish
Relationship
Gather Client Information
Review Client’s • Investment objective
Investment Portfolio • Investment time horizon
Review Gather Data • Identify risk profile
CLIENTS
Analyze and assess the
Implement the client’s client’s Financial Status
investment Portfolio Implement Analyse and Risk Profile
Design & Develop the Investment Portfolio

Develop and Present to Client
95
• Something you
Want
like to have
• Something that
Have
you have
• Something you
Need
have to have
96
WANT HAVE NEED
97
Wealth Accumulation
Wealth Accumulation (Case Study 1)
Sample information provided by client (Mr.A):
Goal/Purpose Down payment for a double-storey linked house Assets
Estimated current cost RM 50,000 Fixed Deposit RM10,000
Duration 5 years Monthly Savings RM400
Expected Rate of Return 5% NOTE: All the information stated are based on
Estimated Inflation Rate 4% assumption. This case study is created
for training purpose only.
Expected FD Rate 3%
Expected savings
0.25%
account interest rate
Step 1
Calculate the future’s value of the fund in one lump sum FV = ??
i =4
PV = -50,000
99 0 n=5 5

Expected FD Rate 3%
Expected savings
0.25%
Solutions: HP10BII Casio FC-100V (CMPD) TVM Apps

Step 2: 1 Shift P/YR n :5 PMT :0
Step 3: BEGIN/END I% :4 FV : SOLVE Estimated cost of down
payment for a double-
Step 4: 50,000 +/- PV PV : -50,000 RATE :4 storey linked house in 5
Step 4: 4 I/YR PMT : 0 PERIOD : 5 years time:
Step 5: 5 N FV :SOLVE COMP : YEARLY RM 60,832.65
100
Expected FD Rate 3%
Expected savings
0.25%
Step 2
Calculate the available fund for the down payment: FV = ??

Lump Sum Investment (Future Value)
i=3
Fixed Deposit
PV = -10,000
101 0 n=5 5

Expected FD Rate 3%
Expected savings
0.25%
Solution: HP10BII Casio FC-100V (CMPD) TVM Apps

Estimated Mr.A‘s lump
Step 3: BEGIN/END I% :3 FV : SOLVE sum investment in 5
Step 4: 10,000 +/- PV PV : -10,000 RATE :3 years time:
Step 4: 3 I/YR PMT : 0 PERIOD : 5
RM 11,592.74
Step 5: 5 N FV :SOLVE COMP : YEARLY
102
Expected FD Rate 3%
Expected savings
0.25%
Step 2
Calculate the available fund for the down payment: FV = ??

Monthly Regular Savings (Future Value)
i = 0.25
PMT = -400
Monthly Savings
103 0 n = 60 (5x12) 5

Expected FD Rate 3%
Expected savings
0.25%

Step 2: 12 Shift P/YR n : 60 (5X12) PMT : -400
Estimated Mr.A‘s
Step 3: BEGIN I% : 0.25/12 FV : SOLVE monthly savings in 5
Step 4: 400 +/- PMT PV :0 RATE : 0.25 years time:
Step 4: 0.25 I/YR PMT : -400 PERIOD : 60 (5X12)
RM 24,153.13
Step 5: 60 (5X12)N FV :SOLVE COMP : MONTHLY
Step 6: FV MODE : BEGIN
104
Expected FD Rate 3%
Expected savings
0.25%
Step 3
Calculate total fund needed in order to meet his goal
Solution:
Total Fund Needed – Assets = Fund Required (Shortfall)
RM60,832.65 – (RM11,592.74 + RM24,153.13) = RM25,086.78
105

Expected FD Rate 3%
Expected savings
0.25%
Step 4: Option 1
Calculate today’s value of the fund in lump sum FV = 25,086.78
i=5
Lump sum investment

PV = ??
0 n=5 5
106
Expected FD Rate 3%
Expected savings
0.25%

Today’s value of
the fund in lump
Step 3: BEGIN/END I% :5 FV : 25,086.78 sum:
Step 4: 25,086.78 FV PV : SOLVE RATE :5
RM19,656.15
Step 5: 5 N FV : 25,086.78 COMP : YEARLY
Step 6: PV MODE : BEGIN/END
Answer:-19,656.15 Answer:-19,656.15 Answer: -19,656.15
107

Expected FD Rate 3%
Expected savings
0.25%
Step 4: Option 2
Calculate today’s value of the fund in monthly payment mode FV = 25,086.78
(Assumption to start saving at the beginning of the period)
i=5
Regular Savings (Monthly)

PMT = ??
108 n = 60 (5X12)
Expected FD Rate 3%
Expected savings
0.25%

Today’s value of
Step 2: 12 Shift P/YR n : 60 (5X12) PMT : SOLVE
the fund in
Step 3: BEGIN I% : 5/12 FV : 25,086.78 monthly payment
Step 4: 25,086.78 FV PV :0 RATE :5 mode:
Step 4: 5 I/YR PMT : SOLVE PERIOD : 60 (5X12)
RM367.36
Step 5: 60 (5X12) N FV : 25,086.78 COMP : MONTHLY
Step 6: PMT MODE : BEGIN
Answer:-367.36 Answer:-367.36 Answer: -367.36
109

Expected FD Rate 3%
Expected savings
0.25%
Step 4: Option 3
Assuming Client A would like to start with RM5,000 lumpsum investment follow by monthly regular savings plan
1) Calculate value of RM5,000 in 5 years time

PV = ??
i=5
Lump sum +
PV = -5,000
110 n=5
Expected FD Rate 3%
Expected savings
0.25%

Estimated Mr.A‘s lump
Step 3: BEGIN/END I% :5 FV : SOLVE sum investment of
Step 4: 5,000 +/- PV PV : -5,000 RATE :5 RM5,000 in 5 years time:
RM 6,381.41
Answer: 6,381,41 Answer: 6,381,41 Answer: 6,381,41
111

Expected FD Rate 3%
Expected savings
0.25%
2) Calculate the fund required/ shortfall
Fund required: RM25,086.78 – RM6,381.41= RM18,705.37
112
Expected FD Rate 3%
Expected savings
0.25%
3) Calculate today’s value of the fund in monthly payment mode

FV = 18,705.37
i=5
PMT = ?? Lump sum +

n = 60 (5X12)
113

Expected FD Rate 3%
Expected savings
0.25%

If Mr.A start his
investment with
Step 3: BEGIN I% : 5/12 FV : 18,705.37 RM5,000
Step 4: 18,705.37 FV PV :0 RATE :5 lumpsum, he has
to invest
RM273.91 every
Step 5: 60 (5X12) N FV : 18,705.37 COMP : MONTHLY month in order to
Step 6: PMT MODE : BEGIN meet his goal.
Answer:-273.91 Answer:-273.91 Answer: -273.91
114
Client: Mr. A
Down payment for Assets: Fund required/ Shortfall/
double storeylinked • Fixed Deposit Surplus
house , RM50K in 5 years • Monthly Savings
time
WANT HAVE NEED
RM60,832.65 RM35,745.87 RM25,086.78
Meet the shortfall,
Option 3:
Option 1: Option 2: Lumpsum
Lumpsum Regular RM5,000.00 +
investment savings Regular
RM19,656.15 RM367.36 savings
RM273.91
115
Financial goals -investment objectives

In the nutshell, • Vacation • Beat inflation
Wealth Accumulation • Buy dream house • Escalating medical cost
• Buy dream car • Child education
• Debt cancellation • Retirement and etc.

• What is client’s financial goal?
• When client wants to achieve financial goal?
• What is client’s inflation rate?
• What is client’s expected rate of return?
• What is his/her risk tolerance?
• What other resources that client has to meet
his financial goal?
Analyze and assess the client’s Financial Status and Risk Profile
• What is client’s shortfall? If no, congratulate
client and establish a new financial goal.
• If yes, advise client by giving options –
lumpsum, regular savings or lumpsum +
116
regular savings
Sample information provided by client
Name: Ken, 23 years old
Occupation: Executive
Income: RM3,500
1. Intends to get married with his girlfriend at 31 years old

Objective:
2. Estimated current cost: RM100,000.00
Financial 1. Fixed Deposit: RM50,000 (current value)

Information: 2. Regular saving in Unit Trust: RM2400 p.a.
1. Inflation rate: 5%
Assumption: 2. Fixed Deposit rate: 3%
3. Rate of return of Unit Trust: 5%
NOTE: All the information stated are based on assumption. This case study is created for training purpose
only.
117

Step 1: Calculate ‘Want’ Step 2: Calculate ‘Have’
FV = ?? FV = ??
RM147,745.54 RM63,338.50
i=5
i=3
Savings
PV = -100,000 n=8
PV = -50,000 n=8
FV = ??
(Begin mode)
RM24,063.75
i=5
Unit Trust
PMT = -2,400 Investment
Total: RM87,402.25
Step 3: Calculate ‘Need’ n=8

RM147,745.54 – RM87,402.25 = RM60,343.29
118
Step 4: Today’s value of fund in Step 4: Today’s value of fund in

lump sum monthly payment mode
FV =60,343.29 FV =60,343.29
i=5 i=5
Lump sum Monthly
PV = ?? n=8 PMT = ?? n = 96 (8*12)

-RM40,842.71 (Begin mode)
-RM510.38
119
Child Education
Child Education (Case Study 1)
Sample information provided by client (Son: Jason – 1 year old)
Year to university 17 years Assumption rate of 3%
return during withdrawal
Years in university 4 years stage
Current education cost per year RM60,000 / year Assumption rate of 8%
return during
Estimated education inflation rate 6% accumulation stage
Year 1 Year 2 Year 3 Year 4

17 years
Accumulation Stage Withdrawal Stage
122

return during
Step 1 Calculate FV of RM60,000 at the end of 17 years
FV = ??
i = 6%
PV = -60,000
123 n = 17
return during
Solution:
Step 1: Shift C Set : BEGIN / END PV : -60,000
Step 2: 1 Shift P/YR n : 17 PMT :0 Estimated education
cost at the end of 17
Step 3: BEGIN/END I% :6 FV : SOLVE
years:
Step 4: 60,000 +/- PV PV : - 60,000 RATE :6
Step 5: 6 I/YR PMT : 0 PERIOD : 17 RM161,566,37
Step 7: FV MODE : BEGIN / END
124

return during
Step 2 Calculate total funds needed for 4 years university cost
PV = ??
i= 3 – 6 = -2.8302
1 + 0.06
PMT = -161,566.37

125 n=4
return during
Solution:
Step 2: 1 Shift P/YR n :4 PMT : -161,566.37 Total education
fund needed for
Step 3: BEGIN I% : -2.8302 FV :0 4 years of
Step 3: 161,566.37 +/- PMT PV : SOLVE RATE : -2.8302 university:
Step 4: -2.8302 I/YR PMT : -161,566.37 PERIOD : 4
RM 675, 052.74
126

return during
Step 3: Option 1
Calculate today’s value of the fund in lump sum
FV = 675,052.74
i = 8%
Lump sum
PV = ??
n = 17
127
return during
Solution:
Step 1: Shift C Set : BEGIN / END PV : SOLVE
Step 2: 1 Shift P/YR n : 17 PMT :0 Today’s value of the
Step 3: BEGIN/END I :8
fund in lump sum:
FV : 637,261.96
Step 4: 637,261.96 FV PV : SOLVE RATE :8 RM182,445.80
Step 6: 17 N FV : 637,261.96 COMP : YEARLY
Step 7: PV MODE : BEGIN / END
128

return during
Step 3: Option 2
Calculate today’s value of the fund in monthly payment mode
(Assumption to start saving at the beginning of the period) FV = 675,052.74
i = 8%
PMT = ?? Regular Savings (Monthly)

129 n = 204 (17X12)
return during
Solution:
Step 2: 12 Shift P/YR n : 204 (17X12) PMT : SOLVE Fund needed for
accumulation in
Step 3: BEGIN I : 8/12 FV : 637,261.96
monthly payment
Step 4: 637,261.96 FV PV :0 RATE :8 mode:
RM1,553.00
Step 6: 204 (17X12)N FV : 637,261.96 COMP : MONTHLY
130

return during
Step 4: Option 3
1) Calculate value of RM10,000 in 17 years’ time

PV = ??
i=8
Lumpsum
Lump sum++
PV = -10,000
RegularSavings
Regular Savings(Monthly)
(Monthly)
131 n = 17
return during

Step 2: 1 Shift P/YR n : 17 PMT :0
Estimated lump sum
Step 3: BEGIN/END I% :8 FV : SOLVE investment of RM10,000
Step 4: 10,000 +/- PV PV : -10,000 RATE :8 in 17 years’ time:
RM 37,000.18
132

return during
Fund required: RM675,052.74 – RM37,000.18= RM638,052.56
133
return during

FV = 638,052.56
i=8
Lump sum +
n = 204 (17X12)
134

return during

If client start his
investment with
Step 3: BEGIN I% :8/12 FV : 638,052.56 RM10,000
Step 4: 638,052.56 FV PV :0 RATE :8 lumpsum, he has
to invest
RM1,467.88 every
Step 5: 204 (17X12) N FV : 638,052.56 COMP : MONTHLY month in order to
135
Client’s son: Jason (1 year old)
4 years education fees for Assets: - Fund required/ Shortfall/

Jason in 17 years’ time Surplus
WANT HAVE NEED
RM675,053.74 RM0 RM675,053.74
Meet the shortfall,
Option 3:
Lumpsum Regular RM10,000.00
investment savings + Regular
RM182,445.80 RM1,553.00 savings
RM1,467.88

In the nutshell, • Child education
Child Education
• How old is client’s child now?
• When will client send his child to university?
• What is the course and the current cost of the
course?
• What is the duration of the course?
• What is the education inflation rate?
• What is client’s expected rate of return?
• What is client’s risk tolerance?
• What other resources that client has to meet
his financial goal?
regular savings
Child’s Name: Mark, 4 years old
1. Enter university in Australia at the age of 17

Objective: 2. Bachelor Business Administration course for 4 years
3. Current cost: RM50,000 p.a.
1. Fixed Deposit: RM30,000 (current value)

Financial
2. Regular saving in Unit Trust: RM3000 p.a.
Information:
3. Insurance: RM100,000 (maturity at age 17)
2. Fixed Deposit rate: 3 %
Assumption:
3. Rate of return (withdrawal stage): 3%
4. Rate of return (accumulation stage): 8%
138
Step 1: Calculate ‘Want’

FV = ??
RM94,282.46 i= 3–5 = -1.9048
1 + 0.05
i = 5%
PV = ??
PMT = -94,282.46
(Begin mode)
RM388,257.32

PV = -50,000 n = 13
n=4
139
Step 2: Calculate ‘Have’
FV = ?? FV = ??
RM44,056.01 (begin mode)
i=3 i=8 RM69,644.76
Fixed Unit Trust

Deposit PMT = -3,000 Investment
PV = -30,000 n = 13 n = 13
Step 3: Calculate ‘Need’

RM388,257.32 – (RM44,056.01+RM69,644.76+RM100,000) = RM174,556.55
140

FV =174,556.55 FV =174,556.55
i=8 i=8
Lump sum Monthly
PV = ?? n = 13 PMT = ?? n = 156 (13X12)

(Begin mode)
-RM64,184.08
-RM635.35
141
Retirement
Retirement (Case Study 1)

Sample information provided by client Mr. B (30 years old)
Expected retirement age 60 years EPF (current value) RM100,000
Desired retirement period 25 years EPF (expected rate of return) 5%
Current annual income RM80,000 Investment (current value) RM50,000
Expected increment of income 4% Expected rate of return (pre-retirement) 7%
Desired annual income during retirement 70% Assumption rate of return (post retirement) 4%
(% of last drawn annual income) Assumption inflation rate 6%
Calculate Retirement Fund for Mr. A (30 years old)
30 years 25 years
Accumulation Stage Withdrawal Stage

145
Step 1
Calculate FV of the salary prior retirement (last drawn annual income)
FV = ??
i = 4%
PV = -80,000
n = 30
146

Solution:
Step 1: Shift C Set : BEGIN / END PV : -80,000 FV of the salary prior
Step 2: 1 Shift P/YR n : 30 PMT :0 retirement (last
Step 3: BEGIN / END I% :4 FV : SOLVE drawn annual
income) :
Step 4: 80,000 +/- PV PV : -80,000 RATE :4
Step 5: 4 I/YR PMT : 0 PERIOD : 30 RM259,471.80
147
Solution:
70% of last drawn annual income = RM259,471.80 x 70%

= RM181,630.26
148

Step 2
Calculate retirement fund needed
i = 4 – 6 = -1.8868
1 + 0.06
PV = ?? PMT = -181,630.26
149
n = 25
Solution:
Step 1: Shift C Set : BEGIN PV : SOLVE Retirement fund
Step 2: 1 Shift P/YR n : 25 PMT : -181,630.26 needed :
Step 3: BEGIN I% : -1.8868 FV :0
RM5,760,872.00
Step 4: 181,630.26 +/- PMT PV : SOLVE RATE : -1.8868
Step 5: -1.8868 I/YR PMT : -181,630.26 PERIOD : 25
Answer: 5,760,872.00 Answer: 5,760,872.00 Answer: 5,760,872.00
150

Step 3.1
Calculate available fund for retirement: EPF (current value) FV = ??
i = 5%
EPF (current value)
PV = -100,000
151
n = 30
Solution:
Step 1: Shift C Set : BEGIN / END PV : -100,000
FV of available
Step 2: 1 Shift P/YR n : 30 PMT :0 retirement fund
Step 3: BEGIN / END I :5 FV : SOLVE (EPF - current value) :
Step 4: 100,000 +/- PV PV : -100,000 RATE :5
RM432,194.24
Answer:432,194.24 Answer: 432,194.24 Answer: 432,194.24
152

Step 3.2
Calculate available fund for retirement: EPF (future contribution)
EPF contribution = 23% x RM80,000 = RM18,400

PMT = -18,400
i*= 5 – 4 = 0.9615
1 + 0.04
*Adjusted i
EPF (future contribution) = Rate of return –increment rate
1 +increment rate
PV = ??
153
n = 30
Solution:
Step 2: 1 Shift P/YR n : 30 PMT : -18,400
Step 3: END FV :0
I : 0.9615
Step 4: 18,400 +/- PMT RATE : 0.9615
PV : SOLVE
Step 5: 0.9615 I/YR PERIOD : 30
PMT : - 18,400
FV : 0
154

Step 3.3
Calculate available fund for retirement: EPF (future contribution )

FV = ??
i = 5%
EPF (future contribution)

PV = -482,134.98
155 n = 30
Solution:
Step 1: Shift C Set : BEGIN / END PV : -482,134.98
FV of available
Step 3: BEGIN / END I% :5 FV : SOLVE (EPF – future
RATE :5 contribution) :
Step 4: 482,134.98 +/- PV PV : -482,134.98
2,083,759.60
Answer: 2,083,759.60 Answer: 2,083,759.60 Answer : 2,083,759.60
156

Step 3.4
Calculate available fund for retirement: Investment
FV = ??
i = 7%
Investment
PV = - 50,000
157 n = 30
Solution:
Step 1: Shift C Set : BEGIN / END PV : -50,000 FV of available
Step 3: BEGIN / END I% :7 FV : SOLVE (Investment –
current value) :
Step 4: 50,000 +/- PV PV : -50,000 RATE :7
Answer: 380,612.75 Answer:380,612.75 Answer: 380,612.75
158

Step 3.5
Calculate total fund available prior retirement and the retirement fund needed
EPF (current value) + EPF (future contribution) + Investment

RM432,194.24 + RM2,083,759.60+ RM380,612.75 = RM2,896, 566.59
Total Retirement Fund Needed:

RM5,760,872.00 – RM2,892,566.59 = RM2,868,305.41
159
Step 4: Option 1
Calculate today’s value of the fund in lump sum
FV = 2,868,305.41
i = 7%
Lump sum
PV = ??
160 n = 30

Solution:
Step 1: Shift C Set : BEGIN / END PV : SOLVE
Step 2: 1 Shift P/YR n : 30 PMT :0 Today’s value of
retirement fund in
Step 3: BEGIN / END I% :7 FV : 2,868,305.41
lump sum
Step 4 : 2,868,305.41 FV PV : SOLVE RATE :7
Step 6: 30 N FV : 2,868,305.41 COMP : YEARLY
Step 7: PV MODE : BEGIN / END
Answer:-376,801.01 Answer: -376,801.01 Answer: -376,801.01
161
Step 4: Option 2
Calculate today’s value of the fund in monthly payment mode
FV = 2,868,305.41
i = 7%
PMT =
??
Regular savings
162 n = 360 (30X12)


Solution:
Step 2: 12 Shift P/YR n : 360 (30X12) PMT : SOLVE Today’s value of
retirement fund in
Step 3: BEGIN I% : 7/12 FV : 2,868,305.41
monthly payment
Step 4: 2,868,305.41 FV PV :0 RATE :7 mode:
Step 6: 360 (30X12) N FV : 2,868,305.41 RM2,337.49
COMP : MONTHLY
163
Step 4: Option 3
1) Calculate value of RM10,000 in 30 years’ time FV = ??
i=7
Lump sum
Lump + investment
sum
PV = -10,000
(RM10,000)
164 n = 30


Step 2: 1 Shift P/YR n : 30 PMT :0
Estimated lump sum
Step 3: BEGIN/END I% :7 FV : SOLVE investment of RM10,000
Step 4: 10,000 +/- PV PV : -10,000 RATE :7 in 30 years’ time:
RM 76,122.55
165
Fund required: RM2,868,305.41 – RM76,122.55 = RM2,792,182.86
166


FV = 2,792,182.86
i=7
LumpMonthly
sum + Investment
n = 360 (30X12)
167

If client start his
investment with
Step 3: BEGIN I% : 7/12 FV : 2,792,182.86 RM10,000
Step 4: 2,792,182.86 FV PV :0 RATE :7 lumpsum, he has
to invest
RM2,275.46 every
Step 5: 360 (30X12) FV : 2,792,182.86 COMP : MONTHLY month in order to
168
Client: Mr. B (30 years old)

Desired 70% of annual Assets: Fund required/ Shortfall/
income during EPF Surplus
retirement for 25 years Investment
WANT HAVE NEED
RM5,760,872.00 RM2,892,566.59 RM2,864,305.41
Meet the shortfall,
Option 3:
Lumpsum Regular RM10,000.00
investment savings + Regular
RM376,801.01 RM2,337.49 savings
RM2,275.46
In the nutshell, • Retirement
Retirement Plan
• How old is your client now?
• What is client’s desire retirement age and
retirement period?
• What is client’s annual income and annual
increment (%)?
• What is client’s current EPF amount and
expected rate of return from EPF?
• What is client’s expected return for pre and
post retirement?
• What is client’s inflation rate?
regular savings

Name: Michelle, aged 31
1. Plan to retire at 55 years old

Objective: 2. Retirement income: 70% of last drawn income
3. Desired retirement period - 25 years
1. Current income: RM7,000 per month
Financial 2. EPF contribution; Employee – 11%, Employer – 12%
Information: 3. Investment in Unit trust (lump sum): RM10,000
4. EPF (current value): RM130,000
2. Expected rate of return (post-retirement): 4%
Assumption: 3. Expected rate of return (pre-retirement): 8%
4. Expected EPF dividend: 5%
5. Expected annual increment rate: 4%
171
Step 1: Calculate ‘Want’
FV = ??
RM215,317.55
i = 4%
Retirement Income:
70% of last drawn annual income = RM215,317.55 x 70%
= RM150,722.29
PV = -84,000 n = 24
i = 4 – 5 = -0.9524
1 + 0.05
PV = ??
PMT = -150,722.29
RM4,236,659.75
n = 25
172

Step 2: Calculate ‘Have’ EPF contribution = 23% x RM84,000 = RM19,320
FV = ??
RM419,262.99 i= 5 – 4 = 0.9615
i = 5% 1 + 0.04
PMT = -19,320
EPF (future
EPF contribution)
(current) n = 24
PV = ?? n = 24
PV = -130,000 n = 24 (end mode)
RM412,309.43
FV = ??
RM1,329,739.12
i = 5%
EPF (future
contribution)
PV = -412,309.43 n = 24
Total EPF Fund: RM419,262.99 + RM1,329,739.12 = RM1,749,002.11

173
Step 2: Calculate ‘Have’
FV = ??
RM63,411.81
i = 8%
Investment
PV = -10,000 n = 24
Step 3: Calculate ‘Need’

RM4,236,659.75 – (RM1,749,002.11+RM63,411.81) = RM2,424,245.83
174

FV = RM2,424,245.83 FV = RM2,424,245.83
i=8 i=8
Lump sum Monthly
PV = ?? n = 24 PMT = ?? n = 288 (24X12)

(Begin mode)
-RM382,301.96
-RM2,778.75
Case Study
Case Study
Mr. Albert is 40 years old, married with 1 child. He works as the Head of Auditor
in one of the Big 4 accounting firms. His wife, 32 years old is not working and
take care of their 3 years old son.
He has provided the following information to you.
As a consultant,
i. Calculate his net cash flow and net worth.
ii. Analyze his financial health
iii. Identify his financial needs and propose solutions.
178
Case Study
Client’s Income and Expenses
No. Monthly Income RM No. Monthly Expenses RM

1. Net Income 20,000.00 1. Food/Groceries 2,000.00
2. Interest 1,300.00* 2. Utilities 500.00
3. Loan Repayment 3500.00
4. Parental Care 1,000.00
5. Entertainment 1,500.00
6. Clothes (self and family) 1,200.00
7. Travelling expenses 1,500.00
8. Car Installment 3,000.00

9. Car Maintenance 1,000.00
10. Savings 2,000.00
11. Insurance - self 800.00
12. Insurance – family 500.00
13. Child expenses 700.00
14 Allowance to wife 1,000.00
* Assumption: The interest is from Fixed Deposit at 3.12% per annum.
179
Client’s Assets and Liabilities

ASSETS RM RM LIABILITIES RM RM
CASH SHORT-TERM LIABILITIES
Fixed Deposits @CIMB 500,000.00 Credit Card Outstanding 55,000.00
Savings (Emergency) 120,000.00
Sub total 620,000.00 Sub total 55,000.00
INVESTMENT ASSETS LONG-TERM LIABILITIES
MBB 10,000 share @RM9 90,000.00 Housing Loan 900,050.00
Unit Trust 100,000.00 Mercedes 167,500.00
EPF 350,000.00 Toyota 52,000.00
Sub total 540,000.00 Sub total 1,119,550.00
PERSONAL USE ASSETS
Estimate Value – House 1,000.000.00
Estimate Value – Mercedez 202,000.00
Estimated Value – Toyota 50,000.00
Subtotal 1,252,000.00
TOTAL ASSETS 2,412,000.00 TOTAL LIABILITIES 1,174,550.00
180
Case Study
Assumptions:
1. As a consultant, advise • Required 70% of his last drawn annual
Mr. Albert on his income for retirement
retirement plan. • Salary increment: 4% annually
• Retirement age: 55 years old
2. He thinks that his EPF • Desired retirement period: 25 years
and investments are • Expected EPF return: 5%
sufficient for his • Expected rate of return (pre-retirement): 8%
retirement. • Expected rate of return (post-retirement): 5%
• Expected inflation rate = 4%
181
Case Study
Assumptions:
• Mr. Albert’s son is 3 years old 1. As a consultant, advise
• Enter private university at age 17
Mr. Albert on his child
• Degree in engineering for 4 years
• Expected inflation rate: 6% education plan.
• Expected rate of return during 2. He thinks that his son is
accumulation stage: 8% still young and does not
• Expected rate of return during
require a child education
withdrawal stage: 3%
• Education fees per year is RM148,000.00 plan yet.
182
The End
183

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MTC -

Cash Flow & Net Worth Management

Cash Flow Management

Cash-flow management is one of the most basic tool in financial planning.

Cash Flow Management

Positive cash Negative cash

 Net Income  Household  Medical/Dental/Healthcare

Cash Flow Management

11. Savings and Investments 500

Cash Flow Management

14. Insurance Premium

Net worth = Value of Assets – Value of Liabilities

Assets & Liabilities

• Savings account • Short-term borrowings

Investment Assets Personal-used assets Long-Term Liabilities (>1 Year)

Net Worth Management

Workout your own Cash Flow Statement

Analyze your financial statements

Inflow – Outflow = Net Cash Flow (+ive or –ive)

Manage your cash flow

• Slow bleed of your net worth

Analyze your net worth statement

Net worth = Value of Assets – Value of Liabilities

• A positive net worth = you own more than you owe

• A negative net worth = you owe more than you own

Increase Assets 1. Increase cash 1. Reduce/ eliminating

How result of net cash flow impact net worth?

Negative net cash flow

Time Value of Money

Principal: The amount of money saved, invested or

Interest: The return on the principal amount.

Time Value of Money

3 Elements to determine interest earnings:

Interest = Principal x Rate of Interest x Time

Simple Interest : Interest paid each time on principal only.

Time Value of Money

Step 2:Interest for 5 years

Step 3: Full payment

Step 4: Monthly loan repayment

Interest paid each time on PRINCIPAL only

Year Principal Interest Rate Amount Earned

1 100 10% 100 + 10 = 110

2 100 10% 110 + 10 = 120

3 100 10% 120 + 10 = 130

4 100 10% 130 + 10 = 140

Time Value of Money

Interest paid each time on PRINCIPAL and ACCUMULATED INTEREST

Year Principal Interest Rate Amount Earned

1 100 10% 100 + 10 = 110

2 110 10% 110 + 11 = 121

3 121 10% 121 + 12.1 = 133.1

N number of compounding periods(Yearly, Semi-annually, Quarterly,

Time Value of Money

Today N= Period I=Interest Future

Translate RM10 today into its equivalent in

Time Value of Money

Time Value of Money

? Translate RM10 in the future into its equivalent

Discounting Single Sums

PV ? HP10BII Casio FC-100V (CMPD) TVM Apps FV

Time Value of Money

Time Value of Money