ACFI3006期末2021S2

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The University of Newcastle *

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3006

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Finance

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Jan 9, 2024

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Question 1 Your client, Katy Perry, has come to you for tax advice on selling her portfolio of shares that she owns in her own name. She says that she has made an offer on a house which has been accepted and needs to sell the shares to help fund the purchase. Katy says that she will need the money no later than 21 st December 2021. Your meeting with Katy is 9 th November 2021. Share Ticker Symbol Number of Shares Purchase Date Purchase Price per share ($) Sale Price per share ($) NET 1,800 16/09/2006 $10 $8 GRE 5,000 19/11/2009 $9.50 $19 TAN 1,000 05/05/2014 $6 $10 RON 3,000 18/11/2020 $16 $21 Katy also has other taxable income of $95,000 for the financial year ending 30 June 2022. Show all workings to calculate Katy’s: (i) Minimum assessable amount from the sale of the shares if she sells the shares as at the date of your meeting with her (9 th November 2021). (4 marks) (ii) Minimum assessable amount from the sale of the shares if she sells the shares on or after 19/11/2021. (4 marks) 1. i. NET = (8-10) x 1800 = - 3600 loss GRE = (19-9.5) x 5000 = 47500 TAN = (10-6) x 1000 = 4000 RON = (21 – 16) x 3000=15000 < 1year Minimum assessable amount = 15000 – 3600 + (47500 + 4000) / 2 +95000 = 132150 ii. NET = (8-10) x 1800 = - 3600 loss GRE = (19-9.5) x 5000 = 47500 TAN = (10-6) x 1000 = 4000

RON = (21 – 16) x 3000=15000 Minimum assessable amount = (15000 + 47500 + 4000– 3600 ) / 2+95000 = 126450 Question 2 1. Direct property investment is sometimes preferred by investors as opposed to share investments due to the tangible nature of a direct property investment. Provide an example where purchasing a direct property as an investment may be considered inappropriate for a client and state your reasons. (6 marks) 1. Expected annual income is lower than expected. 2. The expected annual expenditure is higher than expected. 3. If the loan must be extended, the lender may change the rules or conditions of the loan, which will affect the leverage income. 4. Investors may lose their jobs and try to generate the cash flow needed to pay their expenses, especially to repay their loans. 5. The situation may force investors to sell assets under less favorable conditions. 6. Asset-specific factors will adversely affect investment assets. 7. The assets did not produce the expected capital gains.

Question 3 1. Your client is about to retire, and they have $850,000 of investment capital available. You have calculated their statistical life expectancy of 22 years however in order to allow a buffer you and the clients agree that they would like their funds to provide for them for 27 years. Assume a nominal rate of return of 6.5% p.a. and inflation of 2.5% p.a. (you can ignore tax as the investment will be held in a superannuation pension fund) and that they are happy to use up the returns and all of the initial lump sum over 27 years. Calculate the amount of income can they draw each year in real terms at the end of each year over the 27 years. (5 marks) Interest after inflation = (1+6.5% ) / (1+ 2.5%) - 1 = 3.9% PV = ( C / i ) [ 1 – 1/(1 + i) n ] PV = 850000 N=27 I= 3.9% C= 51470.58

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Question 4 1. Your client is about to retire. You have calculated their statistical life expectancy of 20 years, however in order to allow a buffer, you and the clients agree that they would like their retirement funds to provide for them for 25 years. They require approximately $62,000 p.a. during retirement - in real terms after tax and to be taken at the end of each year. Other than investment returns on the capital, your client doesn’t expect any other income (incl. no Social Security). Assume a nominal rate of return of 6.0% p.a. and inflation of 2.0% p.a. (you can ignore tax as the investment will be held in a superannuation pension fund) and that they are happy to use up the returns and all of the initial lump sum over the 25 years to fund retirement. Show workings and calculate the lump sum that would need to be invested today to be able to fund the future cash needs of $62,000 p.a. (5 marks) Interest after inflation = (1+6% ) / (1+ 2%) - 1 = 3.9% PV = ( C / i ) [ 1 – 1/(1 + i) n ] C = 62000 N= 25 I= 3.9% PV = 978888.22 Question 5 1. The Financial Adviser Standards and Ethics Authority (FASEA) was established in 2017. What are two main reasons it was established? Explain why you feel FASEA has, or has not, achieved it purpose? ( 4 marks) Main reasons: To raise the education, training and ethical standards of financial advisers and financial planners. To promote enhanced consumer trust and confidence in financial planners and financial advisers.

Question 6 1. One of your elderly clients has sadly passed away and their widow has requested a meeting with you to review their assets. The primary residence was owned as tenants- in-common with the widow and their share portfolio and term deposits are owned in joint names (again with the widow). Discuss how the assets will be treated for estate administration purposes. (4 marks) As the main residence owned by the tenant who shares with his widow-the customer's share of the property will form part of his estate and be distributed according to his will (or intestate law). Usually, the beneficiary can get the main residence tax-free, unless the customer uses it to generate taxable income at a certain time. Stock portfolios and time deposits jointly owned by his widow-owned by the surviving party on the date of death of the deceased. There is no CGT at present, but you can apply after disposal. Question 7 Superannuation is the preferred vehicle for accumulating retirement savings for the majority of Australians. Provide an example, giving reasons, why superannuation may not be preferred by some people. (4 marks) Workers with temporary visas. They will leave Australia in the future. They prefer direct access to funds. 持有临时签证的工作者。他们在未来会离开澳大利亚。他们更倾向于直接获得资金。 Question 8

1. If an elderly retiree currently receives a part Age Pension, outline three different, legal strategies that they might consider which can help them to increase their Age Pension amount. (4 marks) Give $10000 to his children each year for three years. Question 9 1. One of your financial planning clients, Leslie Chow, has requested your advice in relation to a package of life insurance. Leslie is single, 28 years of old and works full- time as a nurse. Based on what you know, would it be appropriate for Leslie to have premium payments based on a stepped or level basis? Explain your reasons. (4 marks) This decision still largely depends on whether customers have long-term demand for life insurance. Stepped is better in the short term. When young, the level premium is higher than the ladder premium, because the level premium includes insurance component and investment component. Part of the investment is invested by insurance companies to help offset the increased cost of insurance premiums as individuals grow older. Question 10 1. You are meeting with some new prospective clients as they are seeking some advice on life insurance and buying their first house together. You discover that they have little understanding of estate planning and they do not have a valid will or other estate planning documentation in place. Discuss whether or not they should be considering getting an enduring power of attorney (EPoA) at this stage of their life. (4 marks) Yes, enduring power of attorney. They do not have a valid will or other estate planning documentation in place. An enduring power of attorney does not lapse upon losing testamentary capacity.

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Question 11 1. One year ago, you provide advice to a new client, Leslie Chow, recommending that they invest into a diversified portfolio of Australian equities. This advice is appropriate for the client based on their circumstances, goals and risk tolerance however the client now comes to you concerned because the value of the shares is less than it was. You review the investments and determine the fall is due to systematic risk. What would you discuss with the client regarding their investment? Should they sell the investment? (4 marks) I will tell them that this is caused by short-term market fluctuations. The portfolio is in line with their situation. Not sell. Question 12 1. Inflation risk is the risk that purchasing power will be eroded by increases in the cost of living. Explain two ways in which a retiree can be protected from inflation risk over the long-term. (4 marks) Holding 60/40 stock/bond portfolio. Invest in S&P 500. Question 13 1. Your clients, Bruce and Sheila, run a small business as a partnership together and they would like your advice on contributing to superannuation. Bruce earns $65,000 and Sheila earns $35,000. What is the maximum Government Co-contribution available for both of them if they contribute $1,000 each to superannuation as non-concessional contributions? (4 marks) Bruce will not receive co-contribution as he earned more than higher threshold. Sheila will receive co-contribution 500.

Question 14 1. Your clients, Mike and May, have inherited $250,000 cash from May’s aunty and they would like to invest it with your help. They consider themselves fairly conservative investors and are also concerned about paying tax on the earnings. May says that she pays a lot of tax already on her income as a doctor. Mike is a stay-at-home dad and has no income. Discuss two strategies of investing the inheritance that will help to minimize any tax on earnings from the inheritance. They do not wish to engage in further borrowings as they already have a home mortgage of $500,000. (4 marks) 1. Repay the mortgage loan: the interest rate may be higher than the investment. 2. Put part of the estate into money market tools to increase liquidity. 1. 偿还抵押贷款：利率可能高于投资 2. 将部分遗产放入货币市场工具以增加流动性 3. 将部分遗产存入管理投资基金 Question 15 1. Provide and discuss two reasons why some people may prefer to utilise the pension loan scheme to meet expenses. (3 marks) 1. Tax credit. Reduce tax expenses 2. pension loan's interest rate is low. 1. 抵税。减少税务上的支出