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
Age	65	35 and 33
Status	Single, owner of large house	Married, joint owners of small apartment
Dependents	Nil	One child (age 2)
Occupation	Retired musician	Pharmacist (Fiona) and Chemical Engineer (Waleed)
Net Income (after super and after tax)	AUD75,000 pa from superannuation	AUD150,000 pa (Fiona) and AUD125,000 pa (Waleed) from salary
Expenses (living and financial)	AUD65,000 pa	AUD145,000 pa including the bank loan
Major assets	Cash at bank AUD10,000 Superannuation AUD600,000 House AUD2.5 million	Cash at bank AUD25,000 Superannuation AUD350,000 Apartment AUD0.8 million
Major liabilities	Nil	Bank loan for the apartment AUD0.6 million (interest only loan)
Major financial goals	Continue self funded retirement	Purchase a house in the future

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.

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.

Question 1 : One of Marions sisters in Portugal has developed a serious health condition. The condition can be treated but it is expensive. Marion has offered to pay for the medical expenses and intends to make two visits per year to Portugal for the next three years. This will cost approximately AUD65,000 per year (for three years). Marion intends to use the investment portfolio to fund this abnormal expense and acknowledges that the likely annual income returns generated by the investment portfolio will not be sufficient to meet all of this expense. This means that some of the securities held in the investment portfolio will have to be sold from time to time and the proceeds used to supplement the income returns. Discuss the key issues that Marion will need to take into consideration whilst managing the investment portfolio during the next three years. (4 marks)

Question 2.b

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 AUD0.8 million), repay the existing bank loan of AUD0.6 million and use the surplus proceeds of AUD0.2 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.

a. 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.

b. 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)

c. 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)

d. 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)

Full Working Out Is Required. I Will Thump Up on 2 ACCOUNTS for correct working out.

Please Answer Before 6:00PM 11/06/2022 Sydney Time