CMFAS RES5 Financial Planning & Calculations question: spends S$25,000 a year on a particular recurring healthcare

CMFAS RES5Financial Planning & Calculations

A client currently spends S$25,000 a year on a particular recurring healthcare need. If this cost rises by 4% per annum (compounded), what will one year's cost be in 15 years' time, to the nearest dollar?

A S$40,000
B S$25,000
C S$45,024
D S$43,000

Show the answer and explanation

Answer: C. S$45,024

Future cost = Present cost × (1 + inflation)^n = 25,000 × (1.04)^15. (1.04)^15 = 1.800944, so 25,000 × 1.800944 = S$45,023.6 ≈ S$45,024. Projected costs must be inflated to their future value before a funding gap is computed.

Common mistake

S$40,000 uses simple growth (25,000 × (1 + 0.04×15) = 25,000 × 1.60); inflation compounds each year, so the true figure is higher.

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Original study material mapped to the public CMFAS RES5 syllabus. Unofficial, not endorsed by MAS or SCI. Verify figures and rules against current guidance before relying on them.