Case Study

Chris:

• - Is an experienced Project Engineer and is employed by one of the largest engineering consulting firms in Australia. The job security is high. However, the scope for further career advancement is not good Chris enjoys the technical aspects of engineering and has little interest in promotion to a management role.

• - Chris works regular hours and the occasional weekend. Chris is a keen cyclist and and likes to spend much of any free time riding with friends.

• - Chris rents a studio apartment but would like to purchase an apartment within the next five years.

• - Chris has a good understanding of financial markets and is familiar with risk and return.

• - Both personally and financially, Chris is considered to be a risk taker.

Client Name	Chris	Kit and Jo	Jim
Age	29	40 and 42	71
Status	Single, renter of Studio apartment	Married, home owners	Widower (single), home owner
Dependents	Nil	Two children (age 6 and 8)	Nil
Occupation	Engineer	Accountant and Biochemist	Retired Doctor
Net Income (after super and after tax)	AUD115,000 pa from salary	AUD150,000 pa (Kit) and AUD120,000 pa (Jo) from salary	AUD85,000 pa total from retirement fund and investment portfolio of bonds and shares
Expenses (living and financial)	AUD85,000 pa including paying rent for the Studio apartment	AUD175,000 pa including the home loan	AUD55,000 pa
Major assets	Cash at bank AUD15,000 Superannuation AUD120,000	Cash at bank AUD75,000 Superannuation AUD250,000 Home AUD1.8 million Car AUD25,000	Cash at bank AUD30,000 Superannuation AUD1.8 million Home AUD1.5 million Investment portfolio AUD250,000 Car AUD50,000
Major liabilities	Nil	Home loan AUD1.2 million (interest only loan)	Nil
Major financial goals	Purchase an apartment within five years (price approx AUD0.7 million) with 20% cash and 80% bank loan	Operate a conservative budget until the children complete high school in about 10 years time	Continue self funded retirement and undertake one overseas holiday each year (approx cost AUD30,000 per holiday additional to normal expenses

Chris wants to purchase an apartment within five years (refer Case Study). Undertake a financial assessment of this objective and comment on whether or not it is achievable.

In your response address three issues:

- the financial capacity to undertake the necessary savings plan for five years for the deposit;

- the financial capacity to service the bank loan (interest only); and,

- the financial capacity to service the bank loan (interest and principal)

The interest on the deposit savings account is 2% and the interest on the bank loans is 4% and the repayments on the bank loans are on a monthly basis.

The term of the interest and principal bank loan is 20 years.