George is 22 years old and has recently completed a Bachelor of Commerce at Deakin University. He has decided to put his learnings into practice and wishes to commence his investment journey. He completed two internships during his University years. As a result of his hard work, he secured a role at Price water house Coopers earning $80 000 per annum after tax. Assume his income will stay the same over the next 3 years. George's parents advised him to put all his money in property due to their own success in the property market. However, George has decided he would like to invest in BOTH shares and property. 

1) Explain the benefits of George's approach. 

 

George plans to use 25% of his salary after tax as savings for the deposit on his first home. He plans to contribute all the savings to a micro-investing app at the end of every month for the next 3 years. The investment is estimated to earn 8.25% p.a. compounding monthly. 

 

2) How much will George have saved after 3 years? 

Show formula, variables, calculations and a concluding statement in your response. 

 

George has planned ahead and identified his dream house purchase in 3 years' time. The current value of the house is $580 000. It is expected that the house will increase in value at a rate of 4.5% p.a. 

 

3) Does the amount saved in part (ii) meet the 10% requirement from the bank as a deposit at the end of year 3?   4 Marks

Show formula, variables, calculations and a concluding statement in your response. 

 

4) How much does he need to borrow from the bank at the end of year 3 to buy the house? (Assume George will borrow 90% from the bank) 1 Mark

 

3 years later at 25 years old, George succeeded with his investment goals. However, his plans have changed due to meeting the love of his life, Stephanie Gerrard. They decided to purchase a property together. Like George, Stephanie also invested successfully. Together, they have combined cash of $220 000, and they would like to allocate $130 000 as deposit for their first home, with the rest of the money gradually invested into bonds and shares. George and Stephanie have decided to purchase a house in Epping to live in for $1 300 000. In order to fund the purchase, George has arranged an 90% loan from the bank, which they will pay off on a monthly basis over a 30-year period. The interest rate on the loan is 2.55% p.a.

 

5) What will George's monthly repayments be on his loan once the property is settled and complete?  

 

6) Stephanie suggests to George that they can reduce the amount of interest they pay over the life of the loan by simply making his monthly repayments at the start of each month rather than at the end. Is Stephanie correct? Explain why/why not using calculations to prove your response.    5 Marks

 

George and Stephanie decided that they can afford to contribute $2 200 per month into BetaShares Diversified All Growth ETF (DHHF), a globally diversified index exchange traded fund.

 

7) Assuming contributions of $2 200 per month do not change over the next 35 years, and the fund has the capacity to grow at 8.50% p.a. compounded monthly, how much will George and Stephanie's index funds be worth at 60 years old? 

 

8) Based on historical data, George expects the value of their property to grow by 4.5% p.a. What will the value of their entire portfolio (property and index fund combined) be worth when George reaches 60 years old?