Question
You are a financial planner for Kelly Roberts. Kelly has just started a new job as an IT programmer for the Australian government. They will
You are a financial planner for Kelly Roberts. Kelly has just started a new job as an IT programmer for the Australian government. They will pay her a salary of AUD$70,000 p.a. She expects her salary to grow at 3% p.a. each year based on previous data. Inflation in Australia is 1%. After a detailed discussion, she has decided that she will deposit 20% of her salary by automatic withdrawals: half into a TFSA; half into a taxable account. The income on the TFSA is never taxed. The income in the taxable account is taxed at 35% p.a. She is an aggressive investor who expects a nominal annual return of 8% p.a. on both accounts.
a) Calculate the following amounts after 8 years, all payments made at year end.
- The nominal value in the TFSA
- The after-tax nominal value in the taxable account
b) Explain to Kelly, using calculations, whether inflation is a major concern for her investments or not.
c) Explain to Kelly two assumptions you have made in your calculations and explain two examples which would make your calculations inaccurate.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started