FNCE20003
Introductory Personal Finance
ASSIGNMENTS 1 and 2
Semester 2, 2024
Prepared by
Tony Cusack
Department of Finance
2
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 penalised if 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
assignments:
Late submission assignments will attract a penalty unless an extension
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 of the assignment instructions are not followed.
3
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 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.
4
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 line up 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.
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