A couple want to retire together 1 5 years from today. They have managed to save $
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Question:
A couple want to retire together years from today. They have managed to save $ at the bank presently earning interest per annum, compounding monthly. The couple will also start contributing $ per month to their retirement. The couple has estimated that on retirement they would need a lump sum of $ to support them in a reasonably comfortable lifestyle for years.
The couple decide to get investment advice from a friend, a financial broker. After talking the financial broker outlines three investment options:
Keep their present and future savings in the bank, earning the present rate of interest.
Invest in the securities of Z House, which advertises an average return of ten percent per annum, compounding monthly. The financial broker will receive commission.
Invest in the securities of V Solutions, which advertises an average return of percent per annum, compounding monthly. The financial broker will receive commission.
The broker says that the couple is unlikely to get a higher return than that offered by V Solutions and recommends the couple invest in option The financial broker doesnt mention that she will be paid a commission of two percent of the value of any funds invested in Z House and a commission of four percent of the value of any funds invested in V Solutions. During their conversation, the couple ask the broker about where they can get more information on the investment options, but are told that there are very limited sources of such information.
a Briefly assess the options proposed by the financial broker in terms of risk and return. Are there other questions the couple might ask about the options? What other factors might need taken into account when planning their retirement? Are there other issues, not necessarily directly related to retirement, which may not have thought about?
b Is the financial broker correct in saying that sources of information on investment are limited Do the couple appear to be following a systematic investment process?
c Do you believe there are ethical issues relating to the financial brokers advice?
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
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