Financial Planning and Investment Management

Question 1: Wealth Grounding - Foundational Part

Additional instructions:

1. Submit your solution document in the form of a single MS Word file on or before the cut-off date shown above.
2. You will need to indicate clearly on the front page your name, student ID, course title and assignment number.
3. The websites will help facilitate your research. However, you will be penalized if you simply cut & paste information from these websites in your assignment.

This TMA assesses the student’s ability to:

• Demonstrate the ability to assess personal financial health using financial statement and ratios
• Describe the use of concept of time value of money to daily transactions
• Illustrate the critical aspects of Wealth Guarding through Tax and Insurance Planning
• Demonstrate Wealth Growing Process through Investment Planning and Retirement Planning

Question 1: Wealth Grounding - Foundational Part

(a) Choose the correct statement.

1. Which of the following is the best way to start a successful savings program?
A. Set a goal of saving 10% of your net income
B. Set up an automatic monthly transfer from your net income to your savings account
C. Make one large lump sum contribution
D. Consider total savings as a variable expense

2. A savings account pays 6% interest compounded monthly. The effective rate of interest is

A. 6.07%
B. 6.17%
C. 6.27%
D. 6.37%

3. Which of the following is generally the most expensive source of consumer credit?

A. Unsecured loans from banks
B. Credit card loans
C. Pawnshops
D. Life Insurance companies

4. A single person is looking for a new apartment; which of the following is more likely a want rather than a need?

A. Modern kitchen appliance
B. Convenient and safe location
C. Energy efficient heating and cooling system
D. A second bathroom

5. Which of the following statements is INCORRECT concerning a $100,000, 7.5% 30 year housing loan?

A. You repay half the loan after 15 years
B. The total interest over the life of the loan is more than the amount you initially borrowed
C. Your monthly payment remains the same for the entire loan term
D. All the above are incorrect
COR167e Tutor-Marked Assignment

6. Which of the following statements is INCORRECT?

A. Balance sheet alone cannot be used to identify the needs of an individual
B. Cash flow statement alone cannot be used to identify the needs of an individual
C. Net cash flow of an individual should always be zero

D. Ratio analysis is used to analyse the “financial health” of an individual

7. Money for small, unplanned expenses would be found in which one of the following budget categories?
A. Housing and maintenance
B. Miscellaneous expenses
C. Reserve funds
D. Savings

Question 2: Wealth Protection – Tax Planning

8. What influence does the rate-of-return assumptions have on goal planning?

I. A high rate-of-return assumption may result in fewer dollars being invested to achieve a particular goal
II. A high rate-of-return assumption will allow greater flexibility in achieving a particular goal
III. A low rate-of-return assumption will create the apparent need for larger investments to be made
IV. A low rate-of-return assumption will more nearly guarantee that a particular goal will be achieved
A. I and II only
B. I and III only
C. I and IV only
D. II and III only
(b)(i) Identify the 3 major beliefs that can limit us in achieving Financial Freedom.
(b)(ii) What would happen to your property if/when a bankruptcy order has been affected on you?
(c) You attended the Suisse International Black Hole seminar in March 2019 and someone you met at the seminar recommended that the scheme is a good deal as he has earned a large amount with little investment risk. Without much hesitation, you invested $80,000 of your hard-earned money into the scheme.
How would this scam investment affect the following financial ratios?
I. Liquid-Assets to Net Worth Ratio
II. Net Investment Assets to Net Worth Ratio
You can assume that the $80,000 investment is from your available savings and borrowed from family members. Explain your answers with workings.
(d) You decided to purchase a brandnew car, financing 70% of the purchase through long-term debt. Explain how this decision will affect your Liquid Assets to Net Worth Ratio at the point of transactions.

Question 2: Wealth Protection – Tax Planning

a)(i) You are required to state the basis period for each of Kind Bear’s source of income for YA 2018 and YA 2019.
(a)(ii) You are required to explain to Kind Bear the income tax implications of each of the following activities:
I. SingTel Shares
II. Commission
III. New Property Options
(b) Calculate Kind Bear’s assessable income for YA 2019.
(c) Calculate the amount of child relief Kind Bear is entitled to claim for YA 2019.

Question 3: Wealth Accumulation – Investment Planning

(a) Write “TRUE” or “FALSE” for the following statements with regard to investment.
1.True/False
An investor cannot lock in a yield to maturity with a coupon.
2.True/False
On a discount bond, the current yield exceeds the yield to maturity.
3.True/False
In Singapore, treasury bills are discounted instruments issued by the MAS on behalf of the Singapore government, with maturities of more than a year.
4.True/False
For investors to have confidence in the ratings assigned, credit rating agencies must be able to provide ratings and risk opinions that are clear, credible and accurate based on a fundamental understanding of credit risk.
5.True/False
A blue chip stock cannot also be an income stock.
6.True/False
A stock that breaks through support level gives a bullish signal.
7.True/False
An investment portfolio should contain at least one security that is dominated by another.
8.True/False
A warrant gives its owner the right to sell shares back to the company at a pre-determined price.
9.True/False
A 2 for 1 stock split is economically equivalent to a 100% stock dividend.
10.True/False
If a firm’s asset turnover increases, its return on assets also increases, assuming everything else remains constant.
(b)(i) Which stock, if added to Gracious Bear’s current portfolio, would do more to reduce the overall level of risk in the portfolio, and why?
(b)(ii) What is the maximum loan amount that Gracious Bear and his wife can borrow?
(c)(i) What is the difference between “collateralised” and “unsecured” bonds?
(c)(ii) Explain 3 limitations of Ratio analysis.