Personal Wealth Management (BAFI 1014) The Cheung's case study Semester 2, 2016. I need your help with question 1

BAFI 1014 PERSONAL WEALTH MANAGEMENT Semester 2, 2016 Practical Assessment Case Study Assignment Group Work in Groups of 2 Students Due date: Week 9, Friday 23rd September 2016 11:59pm Weighting: Case Study and Poster - 30% Word Length: No more than 2000 words. Content Coverage Lecture Materials 1 to 8. Learning outcomes Appreciate the effects of taxation and social security on financial planning and calculate taxation liability and social security entitlements; Explain the features of various forms of investment available to individuals and outline their advantages and disadvantages; Develop and be able to critically evaluate a financial plan for an individual; Understand and perform simple financial need analysis. Other objectives: Research, problem solving skills, communication skills, critical thinking, writing competence. Objectives This assessment item relates to learning outcomes 1 to 4 stated in page 3 of the Course Guide. 1 Assessment task Question 1: Case study You are a financial adviser and the following information is an extract of data you gathered as part of fact finding during an initial client consultation for married couple Alan Cheung and Sarah Cheung: Personal details, income and savings: Name Age Gross annual salary Insurance Bond Superannuation Alan Cheung 50 $85,500 $45,000 $125,000 Sarah Cheung 52 $101,500 $50,000 $180,000 The Cheung's have one 16 year old daughter who attends a State Secondary College. Additional Information Alan plans to retire at age 60 and Sarah plans to retire at age 62. Alan and Sarah have decided to save additional money for their retirement using insurance bonds, which they opened at the beginning of year. At the end of each year, they will transfer any surplus money into the insurance bonds with 60% invested into Sarah's and 40% invested into Alan's insurance bonds. Alan and Sarah have set an objective that will save at least 25% of their combined after tax income until their retirement. Assume their income will remain constant in dollar terms and that the 2015/16 tax rate will stay constant until their respective retirements. Assume that the school fees and related education expenses will be incurred for the next 5 years while their daughter completes secondary school and an undergraduate business degree. Assume that all expense amounts have been adjusted for inflation and will stay constant in dollar terms until the Cheung's respective retirements. Assume that both Alan and Sarah have 9.5% employer superannuation contributions until their retirement. This is paid in addition to their salary and they do not salary sacrifice into their superannuation. 2 Annual Budget Sheet Regular Commitments $ House repayments (5 year term).... ........................ 32,500 Rates ............................................................ 960 Electricity/Water/Gas ........................................ 840 Telephone/Mobile ............................................ 6,200 Pay television/Internet ....................................... 1450 Insurance - home/contents .................................. 1250 School fees and related expenses ........................... 10,000 Insurance - car ................................................ 875 Health Insurance .............................................. 3,235 Credit cards p.a .. ......................... .................... 6,000 Loans (10 year term).......................................... 8,000 Petrol/maintenance ........................................... 6,500 Car registration ................................................ 720 Public transport ............................................... 2,800 Other expenses Food ............................................................ 13,500 Clothing/Haircuts/Beauty ................................... 4,500 House maintenance ........................................... 3,800 Medical/Dental ................................................ 2,500 Entertainment/Dinners ....................................... 2,500 Prof. Memberships (Sarah).................................. 1,000 Gifts - Birthdays/Christmas ................................. 5,000 Total ........................................................... 114,130 Required: A. Calculate the Cheung's combined annual after-tax income. (Assume they are exempt from the Medicare levy surcharge because they have private health insurance in Alan's name). B. Will the Cheung's be able to meet their objective of saving at least 25% of their combined after tax income until retirement? Discuss. C. Calculate the amount of combined savings Alan and Sarah will accumulate in their insurance bond for their retirement using two investment options. Option 1) they invest into a fixed interest insurance bond paying 2.3 % p.a. Option 2) they invest into a managed fund paying 5.5% p.a. Use an excel spread sheet or financial formulae provided below to show calculations and assume that savings are made at the end of each year. D. Analyse two other issues the Cheung's need to consider in planning for their retirement. (3 + 3 + 3 + 6 = 15 marks) 3 Financial Formulae Future value FV = PV(1 + i)n Annuity (Future value) FV = PMT[(1 + i)n - 1] i Question 2: Infographic/poster You are required to design an infographic/poster that would be used on financial planner's website or displayed in their office. The purpose of the infographic/poster is to explain to investors the key differences between investing in an unlisted managed fund and exchange traded fund (ETF). The poster should be self-explanatory and contain real information. So you should conduct additional research and you may want to compare two actual funds. Make sure to reference your sources in the poster. The aim of the poster is to communicate essential information about funds to an audience with limited financial knowledge. Here are some useful website references: Infographic/poster websites: https://piktochart.com/ https://venngage.com/ Otherwise, you can use Adobe Photoshop or Powerpoint to design the infographic/poster. Website for unlisted managed funds: http://www.asx.com.au/mfund/ Websites for exchange traded funds (ETFs): https://www.blackrock.com/au/individual/ishares https://www.vanguardinvestments.com.au/retail/jsp/home.jsp Submission of assignment: The infographic/poster can be submitted as a picture in a word document or by providing a web link. It is your responsibility to ensure that the examiner can accurately view the poster/infographic. (15 Marks) 4 Marking criteria The marking criteria for this assignment are as follows: Case Study Marks Question 1 A 3 Question 1 B 3 Question 1 C 3 Question 1 D 6 Question1 Sub-total 15 Question 2: Presentation 5 Content 10 Question Possible marks Question 2 5 Question2 Sub-total 15 Overall mark 30 Criterion 5 marks Excellent use of graphics and data. Arrangement of information is coherent with an appeal to the audience. 4 marks Good use of graphics and data. Arrangement of information can be followed but may require more effort by the audience. 3 marks Graphics and data are presented but limited or ill suited. The presentation can be understood but is not audience friendly. Presentation 0-2 marks Question 2 10 Presentation lacks graphics and/ or information. Arrangement of information does not consider the audience. 8 - 10 marks Very clear, thoroughly researched and referenced. Key differences identified and an excellent understanding demonstrated. 6.5 - 8 marks Clear, researched and referenced. Most differences identified and a strong understanding demonstrated. 4.5 - 6 marks Adequately information but not as thoroughly researched and referenced. Not all differences identified and only partial understanding shown. Content 0 - 4 marks Poor information, with little research and references. Does not show a clear understanding of differences. Not to undergraduate standard. 5 Important Note: While answering requirements involving calculations, you are expected to describe your approach and explain your calculations. If assumptions are made, these assumptions must be clearly stated. In order to answer requirements of this Practical Case Study, you may need to access resources other than the set text. All sources used in your assignment must be clearly referenced both in-text and at the end. 6