FNCE20003 Introductory Personal Finance

FNCE20003

Introductory Personal Finance

ASSIGNMENTS 1 and 2

Semester 2, 2024

Administrative matters

Task: Both assignments in this subject relate to one scenario (see next page).

That is, all of the facts will apply to both assignments, but you will be required to answer different questions in each.

Due dates:                Assignment 1: Friday, 27th September 2024 (6:00 pm)

Assignment 2: Friday, 18th October 2024 (6:00 pm)

Submission: Submission of each assignment is via the Canvas Submission link.

Word limit: The word limit for each assignment is 600-1200 words, and you will

be penalisedif your answers are more than 10% above or below these limits. The word limits do not include calculations, appendices, graphs, tables, or footnotes (if any). Appendices may be used only for items such as calculations detail, or providing formal detail related to regulatory rights and obligations. No bibliography is required.

Completion: These are individual assignments, to be completed solely by students

individually. You may discuss the assignments and share information sources with other students; however, the writing of your assignments must be conducted separately and independently.

Marks: Each  assignment  counts 15% towards the final mark in this subject

(total 30%).

Late Late submission assignments will attract a penalty unless an extension

assignments: has been granted. Extension requests are covered in the Subject Guide.

For assignments submitted after the due date, the mark awarded will be reduced by 10% for each day the work is late.

Presentation: It is recommended that the assignment document is in 1.5 line spacing.

Correct grammar, punctuation and spelling are expected.

Penalties may apply if any ofthe assignment instructions are not followed.

Scenario

You are the principal of a financial planning firm (you hold an AFSL), recently engaged by a married couple to provide retirement planning advice. They have provided the following information in relation to their personal and financial circumstances.

The husband and wife are both aged  65 and are  (the  only)  members  of a  Self-Managed Superannuation Fund (SMSF). They advise that there is a total value of just over $700,000 accumulated in the fund, comprising investment in Australian equities and cash. For many years, they have aimed to maintain an approximately 50-50 split between these two asset classes (they didn’t explain why). The current asset holdings, with prices stated at market value on the date of the meeting, are below:

•    2,000 NAB fully paid ordinary shares @ $36.55

•    3,500 BHP fully paid ordinary shares @ $41.95

•   400 CSL fully paid ordinary shares @ $305.20

•    1,350 GMG fully paid ordinary shares @ $34.98

•    1,000 IEL fully paid ordinary shares @ $11.95

•   the cash investment is a deposit in the amount of $300,000 with NAB (paying 4.75% p.a. and maturing in 6 months).

Assume that each of the shares pays fully franked dividends.

They also advised that they own their home, have around $110,000 in lifestyle assets, and have two married adult children and three grandchildren.

Assignment 1 [5 + 5 + 5 = 15 marks]

Answer the following:

1.   Clearly explain your obligations as a financial planner that would apply if the clients were to engage you to prepare a Statement of Advice (note: you are not required to prepare such statement in these assignments).

2.   You have determined that the 代 写FNCE20003 Introductory Personal Finance clients have not provided sufficient information to enable you to provide financial advice that meets regulatory requirements. Identify and explain what further information you would seek from them to enable you to prepare a SoA. In your explanation, address how you perceive the clients’ degree of risk aversion, and how you would seek to assess this more formally.

3.   Based on the client’s  degree of risk aversion that you identified in part (2), give your opinion as to whether the current asset allocation is optimal for them (be aware of the possibility that the portfolio might be difficult to improve upon). Explain the reasons for your opinion.

Assignment 2 [3 + 6 + 6 = 15 marks]

The clients emphasise that they are ready to retire and seek your advice in determining a suitable financial plan that focuses on their retirement income stream (RIS) needs.

Answer the following:

1.   If you were to prepare a SoA, the main focus would be on ensuring an adequate RIS for your clients. One alternative that you would need to consider is the implementation of an annuity strategy, e.g. cashing in all or part of the lump sum accumulation and purchasing a term or lifetime annuity. Explain the advantages and disadvantages of this alternative.

2.   Assuming you choose to recommend the ‘purchase annuity’ strategy, provide details such as annuity cost, indexation rate if applicable, and amount of starting annual annuity (you can find current yields on annuity purchase prices by consulting the web site of a provider such as Challenger. If the proposed annuity term does not lineup with available information, just make an educated estimate of the yield, e.g. by interpolation).

3. What is your main advice for the clients in relation to the lump sum accumulation? That is, do you recommend maintaining the current portfolio, or the ‘purchase  annuity’ strategy, or something else? Explain your advice by demonstrating that it is the optimal use of the lump sum accumulation for your clients’ needs.