Question 2.b (14 marks) Fiona and Waleed would like to buy a house in the next few years. The market price for a suitable house is approximately AUD1.8 million The bank has suggested the best approach would be to sell the apartment (for approximately AUDO.8 million), repay the existing bank loan of AUDO.6 million and use the surplus proceeds of AUDO.2 million as the deposit on the house. On this basis the bank indicated it would likely approve a new loan of AUD1.6 million to purchase the house. The new loan would be interest plus principal, monthly repayments, an interest rate of 5% and a term of 25 years. Review the financial capacity of Fiona and Waleed to service the new loan as proposed by the bank. In your response make sure you take into consideration the period that Waleed will be on extended leave. (4 marks) Fiona and Waleed prefer an alternative approach that involves the commencement of a savings plan for the deposit and retaining the apartment as an investment property. They acknowledge that this approach will delay the purchase of the house. Prepare a savings plan for the next four years and estimate the balance at the end of year 4. Assume that 80% of the annual surplus is available for the savings plan. Ignore interest on the savings. In your response make sure you take into consideration the period that Waleed will be on extended leave. (3 marks) Review the financial capacity of Fiona and Waleed to service the new loan associated with this alternative approach. The terms of the loan and the deposit amount are the same as the original loan as proposed by the bank. Note that the purchase of the house will occur in year 5 (so the period that Waleed is on extended leave is irrelevant). Assume net rental income from the apartment of AUD22,000 per annum. (4 marks) With reference to the results of your analysis above, make a recommendation to Fiona and Waleed. In your response clearly set out your reasons. (3 marks) 1 A- B UI L. P-P-- v3.docx B (Alt+Q) AaBbCcD AaBbCcD AaBb AaBbC AaBbC AaBbC AaBbCcD. AaBbC TEX + 1 2 V 15 You work as a Financial Planning Adviser and have been asked to assist with two new clients. You have received background information on each client (see below). Client Name Marion Fiona and Waleed P 2 43 Age+ 65+ 35 and 33 4 Status Single, owner of large house Married, joint owners of small apartment e Dependents Nile One child (age 2) Occupation Retired musician Pharmacist (Fiona) and Chemical Engineer (Waleed) 4 Net Income AUD75,000 pa from (after super and after tax) superannuation AUD150,000 pa (Fiona) and AUD125,000 pa (Waleed) from salary Expenses + AUD65,000 pa AUD145,000 pa including the bank loan (living and financial) Major assets Cash at bank AUD25,000 Cash at bank AUD10,000 Superannuation AUD600,000+ House AUD2.5 million Superannuation AUD350,000+ Apartment AUDO.8 million e 2 Major liabilities Nile Bank loan for the apartment AUDO.6 million (interest only loan) 4 Major financial goals Continue self funded retirement Purchase a house in the future e 2 You have had an introductory meeting with each new client to obtain a better understanding of their circumstances, financial goals and risk preferences. Below are some notes from those meetings. E I A e A (Alt+Q) AaBbCcD AaBbCcD AaBb AaBbC AaBbC AaBbC AaBbCcD. AaBbC JIEX 1 2 5 Marion: Marion is a retired musician. She divorced about two years ago and now lives alone. Financially, Marion is comfortable in retirement - largely as a result of following a financial plan for many years. Marion is active, in good health and is a volunteer at the local primary school where she helps children with learning difficulties. Marion does not have children. She is family oriented and regularly communicates with her sisters that live in Portugal. Marion is conservative by nature and has no interest in risky investments. Fiona and Waleed: Fiona and Waleed enjoy being parents and are devoted to their child. Both are currently working but arrangements have been made for Waleed to take extended leave of absence from his work for 24 months to look after the child. Their apartment is small but is adequate at the moment. They recognize the need for more space as the child matures. Also, although they have no immediate plans, it is possible they might decide to have another child in the future. Both Fiona and Waleed are well educated, financially literate and consider themselves to be risk takers - they assess each opportunity on its merits. But they would never place in jeopardy their family or their family wealth. 000000000 I Question 2.b (14 marks) Fiona and Waleed would like to buy a house in the next few years. The market price for a suitable house is approximately AUD1.8 million The bank has suggested the best approach would be to sell the apartment (for approximately AUDO.8 million), repay the existing bank loan of AUDO.6 million and use the surplus proceeds of AUDO.2 million as the deposit on the house. On this basis the bank indicated it would likely approve a new loan of AUD1.6 million to purchase the house. The new loan would be interest plus principal, monthly repayments, an interest rate of 5% and a term of 25 years. Review the financial capacity of Fiona and Waleed to service the new loan as proposed by the bank. In your response make sure you take into consideration the period that Waleed will be on extended leave. (4 marks) Fiona and Waleed prefer an alternative approach that involves the commencement of a savings plan for the deposit and retaining the apartment as an investment property. They acknowledge that this approach will delay the purchase of the house. Prepare a savings plan for the next four years and estimate the balance at the end of year 4. Assume that 80% of the annual surplus is available for the savings plan. Ignore interest on the savings. In your response make sure you take into consideration the period that Waleed will be on extended leave. (3 marks) Review the financial capacity of Fiona and Waleed to service the new loan associated with this alternative approach. The terms of the loan and the deposit amount are the same as the original loan as proposed by the bank. Note that the purchase of the house will occur in year 5 (so the period that Waleed is on extended leave is irrelevant). Assume net rental income from the apartment of AUD22,000 per annum. (4 marks) With reference to the results of your analysis above, make a recommendation to Fiona and Waleed. In your response clearly set out your reasons. (3 marks) 1 A- B UI L. P-P-- v3.docx B (Alt+Q) AaBbCcD AaBbCcD AaBb AaBbC AaBbC AaBbC AaBbCcD. AaBbC TEX + 1 2 V 15 You work as a Financial Planning Adviser and have been asked to assist with two new clients. You have received background information on each client (see below). Client Name Marion Fiona and Waleed P 2 43 Age+ 65+ 35 and 33 4 Status Single, owner of large house Married, joint owners of small apartment e Dependents Nile One child (age 2) Occupation Retired musician Pharmacist (Fiona) and Chemical Engineer (Waleed) 4 Net Income AUD75,000 pa from (after super and after tax) superannuation AUD150,000 pa (Fiona) and AUD125,000 pa (Waleed) from salary Expenses + AUD65,000 pa AUD145,000 pa including the bank loan (living and financial) Major assets Cash at bank AUD25,000 Cash at bank AUD10,000 Superannuation AUD600,000+ House AUD2.5 million Superannuation AUD350,000+ Apartment AUDO.8 million e 2 Major liabilities Nile Bank loan for the apartment AUDO.6 million (interest only loan) 4 Major financial goals Continue self funded retirement Purchase a house in the future e 2 You have had an introductory meeting with each new client to obtain a better understanding of their circumstances, financial goals and risk preferences. Below are some notes from those meetings. E I A e A (Alt+Q) AaBbCcD AaBbCcD AaBb AaBbC AaBbC AaBbC AaBbCcD. AaBbC JIEX 1 2 5 Marion: Marion is a retired musician. She divorced about two years ago and now lives alone. Financially, Marion is comfortable in retirement - largely as a result of following a financial plan for many years. Marion is active, in good health and is a volunteer at the local primary school where she helps children with learning difficulties. Marion does not have children. She is family oriented and regularly communicates with her sisters that live in Portugal. Marion is conservative by nature and has no interest in risky investments. Fiona and Waleed: Fiona and Waleed enjoy being parents and are devoted to their child. Both are currently working but arrangements have been made for Waleed to take extended leave of absence from his work for 24 months to look after the child. Their apartment is small but is adequate at the moment. They recognize the need for more space as the child matures. Also, although they have no immediate plans, it is possible they might decide to have another child in the future. Both Fiona and Waleed are well educated, financially literate and consider themselves to be risk takers - they assess each opportunity on its merits. But they would never place in jeopardy their family or their family wealth. 000000000