Assessment description:

The student is required to read the case background first, then conduct relevant research according to the requirements, and provide solutions to all the questions required.

Case background:

Lynn and Tony are your clients. Below are the details of the family's current financial status:

Assets

liabilities

Family home

350,000

Credit card

1500

Car

20,000

mortgage

20,000

Bank deposits

60,000

Bonds

90,000

Managed funds

50,000

Superannuation funds

380,000

Income

Gross annual salaries for Lynn and Tony: 65,000 and 35,000

Expense

Annual expense including 10,000 mortgage repayment: $30,000

Requirements:

1. What are the main factors that you need to consider when deciding on what is an appropriate asset allocation for the couple?

Some issues you would raise to them are whether they:

- Have the necessary deposit (and other initial costs such as stamp duty and conveyancing fees) to purchase the property yet still has adequate savings in place in case of unexpected events such as unemployment or an accident. - Is able to service the mortgage given his existing living expenses and income and also later on should interest rates rise.

- Would be willing to have a leveraged risk exposure to housing.

2. Describe what stage of life you think the family is at and why you think so. (To answer this question, you are suggested to look at the size of superannuation and their mortgage).

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FNS50615 Diploma of Financial PlanningAustralian Professional Education Institute

3. The couple wants to change their investment portfolio by withdrawing $20,000 from their bank deposit and investing the same amount in funds instead. They are interested in the two funds below:

BTA0169AU BT Asset Selection Fund and

RFA0027AU BT Ethical Share Fund

You are required to conduct research on the above funds. Go to www.comparefunds.com.au and compare the two funds and answer the following questions:

1)Explain to the couple how these two funds differ, including the difference in fund type and management strategy?

2)How much income did the funds produce over the 2012-2013 financial year?

3)Which fund has performed better over the 2012-2013 financial year?

4. Suppose the couple is interested in getting advice on what is the best outcome at the end of a six-year period for investing a sum of money out of their cash deposit in the following options, given a 9% earning rate. What is the preferred option?

Option 1Invest $5,000 as a lump sum today.

Option 2Invest $2,000 at the end of each of the next five years.

Option 3Invest a lump sum of $3,000 today and $1,000 at the end of the next five years.

DFP Module 1 Student Guide

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FNS50615 Diploma of Financial PlanningAustralian Professional Education Institute

Option 4Invest $900 at the end of years one, three and five.