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.

7 marks

Client Name Chris Kit and Jo Jim 71 Widower (single), home owner Age 29 40 and 42 Status Single, renter of Studio Married, home owners apartment Dependents Nil Two children (age 6 and 8) Occupation Engineer Accountant and Biochemist Net Income AUD115,000 pa from salary AUD150,000 pa (Kit) and (after super AUD120,000 pa (Jo) from and after salary tax) Expenses AUD85,000 pa including AUD175,000 pa including the (living and paying rent for the Studio home loan financial) apartment Major assets Cash at bank AUD15,000 Cash at bank AUD75,000 Superannuation Superannuation AUD250,000 AUD120,000 Home AUD1.8 million Car AUD25,000 Nil Retired Doctor AUD85,000 pa total from retirement fund and investment portfolio of bonds and shares AUD55,000 pa Cash at bank AUD30,000 Superannuation AUD1.8 million Home AUD1.5 million Investment portfolio AUD250,000 Car AUD50,000 Nil Nil Major liabilities Major financial goals Purchase an apartment within five years (price approx AUDO.7 million) with 20% cash and 80% bank loan Home loan AUD1.2 million (interest only 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)