Fundamentals of Financial Planning
Page 1 Course: FIN4097EF Fundamentals of Financial Planning I Assignment: Case Study Marks for this assessment: 100% ( 20% of the total score of this course) Assignment Due Date: 30 th December 2020 Assignment Information and Specification This case study is to provide hand on experience to synthesise the course topics that you have learnt throughout the semester by apply them to authentic scenario s. What you need to do: 1. Your assignment should be submitted with report format. 2. The assignment is in English . 3. Submit your written report on 30 th December 20 20 (Wed ). 4. Use A4 size paper in this assignment. 5. Prepare a written report with single -spaced, double between paragraphs about your finds and analysis. 6. Not more than 600 words. 7. Use the American Psy chological Association (APA) style of referencing to acknowledge sources used in your assignment. 8. You should submit your assignment to OLE. Report format: 1. Title Section/Report Cover Page : This includes student name, student ID and the report due date. 2. Su mmary : It needs to be short as it is a general overview of the report. Some people will read the summary and only skim the report, so make sure you include all the relevant information. It would be best to write this last so you will include everything, ev en the points that might be added at the last minute. (This part should be half page. ) 3. Findings : You should include the result of calculations and financial status/situations . (This part should be 2 to 6 pages, depending on the number of graphs, chart, information, etc. that were reasonable. ) 4. Conclusion and recommendation : It provides a summary of your findings and investigations and suggests appropriate actions . (This part should be 1 -3 pages. ) 5. Appendices . Page 2 Guideline for the assignment
When your assign ment is turned in, it should be done on a word processor in correct format.
Like any paper, you will be graded on the originality and importance of your ideas, your proper use of the English language (including grammar and spelling), and the neatness and professionalism of your report. Charts, tables, graphs, etc. are required to present in the appendix.
References for source materials used e.g. reference books, publications, website, and other resources to assist in your analysis. Plagiarism is prohibite d and may cause you to get zero mark in this assignment.
You may wish to have your proofreading done by someone with a good English background, but not a statistical background.
The assignment in its final form will be due on the date specified above. A p enalty of 10% deduction of your assignment mark for one day late (20% for two days late and so forth) will be incurred. You will lose significant points automatically if you miss any of the deadlines. If you are unable to submit your assignment by 9 th January 2021, zero mark will be given. Page 3 Case Study: Peggy and Edmond purchased their home for $350,000 six years ago, but the value of the property has grown to $500,000 since then. The outstanding mortgage balance is $318,000, with mortgage annual inte rest rate of 4.29 percent. Now that Peggy and Edmond are expecting their third child, they need more space. The couple has you , as a personal financial planner, to help them understand the financing options for purchasing a new $800,000 property. Real estate fees on the sale of their current property are expected to equal four percent of the sale price. However, they don’t expect to sell their current home before November. The qualifying rate for mortgage applications is five percent. Bridge loans are available at a variable rate of five percent and prevailing mortgage rates are as follows: Bank A Bank B Bank C One -year fixed rate 6.3% p.a. 6.3% p.a. 6.3% p.a. Four -year fixed rate n/a 3.75% p.a. n/a p.a. Five -year fixed rate 3.99% p.a n/a n/a p.a. Variable rate Prime Rate minus 2.25% p.a. * Prime Rate minus 2.25% p.a. * Prime Rate minus 2.25% p.a. * *Prime rate = 5.25% p.a. If Peggy and Edmond pay out their current mortgage on the sale of their home, and take a new mortgage with a lower interest rate, they will be required to pay a penalty of $4,128. Edmond and Peggy expect to raise their children in the new house and have no plans to sell in the short term. They understand that, while monthly payments will be fixed, the amortization period may extend beyond the original date set if interest rates increase over time. This does not present a concern for the couple. Edmond and Peggy ’s primary goal is to pay off their mortgage as quickly as possible. The couple plans on doing a large renovation within a few years. To help in adjudicating Edmond and Peggy ’s mortgage application, you requested their credit bureau repo rts (as seen in Appendix A). The couple pays $305 per month toward their joint line of credit and Peggy pays $460 per month toward a car loan. The value of her car is estimated at $15,000, while Edmond ’s car is worth $7,000. Their current account (Edmond and Peggy ’s joint account) has a balance of $9,000. Page 4 The couple is proud of the fact that they are able to save $400 per month in their joint savings . Peggy has been focused on saving for emergencies, so she prefers that the $31,000 in her savings account be held in cash, while Edmond has invested $40,000 in a balanced mutual fund portfolio. Peggy contributes $300 per month to an employer sponsored defin ed contribution pension plan, estimated at $18,000, and recently contributed $5,000 to a voluntary contribution pension plan . Edmond has no employer pension and saves $400 per month toward his voluntary contribution pension plan in a growth -oriented mutual fund portfolio. The account has grown to $61,000. His goal is to maximize his voluntary contribution pension plan contributions once he repays $25,000 in student loans. The couple also contributes $400 per month to a scholarship trust for their children’s education. Peggy earns $6,500 per month as a teacher, keeping $5,050 after taxes. The school board’s top -up will ensure she maintains her full salary through her maternity leave. Edmond , as a sales manager, keeps $6,250 per month after taxes from his annual gross salary of $102,000. The couple’s combined debt payment totals $2,850 per month. This includes $1,750 for their mortgage, $250 toward Edmond ’s student loan and $105 to Peggy ’s $3,000 balance on her c redit card. In addition, the couple spends $450 per month on transportation costs, including $300 for Edmond ’s transit pass and $150 toward gas for the cars. Each July, they pay their car insurance premiums in full, at a combined cost of $2,700. Their gas spending has increased on higher fuel cost, and because they now drive their children to a daycare that is farther from the train station than their former daycare provider. The new daycare charges them $2,000 per month for their two children. Their two ch ildren will continue to attend daycare while Peggy is on maternity leave taking care of their newborn baby. Daycare costs are expected to remain constant at $2,000 per month, given that their eldest child’s need for daycare will be replaced by their younge st child’s need when Peggy returns to work. Peggy and Edmond ’s property taxes and home insurance are $4,200 and $960, respectively. Their gas, water and hydro bills total $100, $125 and $125 respectively every month. Food and house supplies average $1,000 per month, while lifestyle expenses, including eating out and vacations, total $18,000 per year. The couple has budgeted for an increase in monthly expenses on the new larger home in the amount of $700 per month for property taxes, and $200 each for gas an d hydro expenses. The couple does not expect to have significant excess cash flow to make additional payments on their mortgage beyond the normal prepayment options provided. Question: As you are Peggy and Edmond ’s personal financial planner. Please review the financial status and situations of the couple and suggest an optimum mortgage plan for them. Page 5 Appendix A: Credit Bureau Report Name: Edmond Age:36 Lender Date opened Credit Limit Balance Last Payment Date Type of Debt Status Date Closed Reason for Closure ABC Bank 2 Jan 2014 $325,000 $318,000 31 Jan 2020 Mortgage * Normal ABC Credit Card Co. 1 Jul 2014 $10,000 $0 21 Jan 2020 Credit Card Normal ABC Bank 12 Aug 2014 10,000 $9,000 2 Jan 2020 Revolving Loan * Normal *Joint account with Peggy. Credit Bureau Report Name: Peggy Age:3 3 Lender Date opened Credit Limit Balance Last Payment Date Type of Debt Status Date Closed Reason for Closure ABC Bank 2 Jan 2014 $325,000 $318,000 31 Jan 2020 Mortgage * Normal ABC Credit Card Co. 1 Jul 201 6 $10,000 $3000 21 Jan 2020 Credit Card Normal ABC Bank 12 Aug 2014 10,000 $9,000 2 Jan 2020 Revolving Loan * Normal BCD Finance 2 Nov 2018 $20,000 $7,000 15 Jan 2020 Car Loan Normal Cell Phone Co. 4 Mar 20 11 $0 $82 4 Mar 2019 Bill Bad 23 Sep 2020 Non – Payment *Joint account with Edmond. Page 6 Rubric for the individual assignment: Total score: 100% Excellent (100% – 90%) Very good (89% – 70%) Fair (69% – 50%) Pass (59% – 40%) Fail (Below 40%) Identification of main issues/ problems (40%) Identifies and understands all of the main issues in the case study . Identifies and understands most of the main issues in the case study . Identifies and understands some of the issues in the case study . Identifies and understands few of the issues in the case study . Unable to identify and understand the issues in the case study. Analysis of the issues (30%) Insightful and thorough analysis of all the issues Thorough analysis of most of the issues Superficial analysis of some of the issues in the case Incomplete analysis of the issues No analysis of the issues Summary & Conclusion (20%) Excellent summary and conclusion. Summarizes the key findings from the report. Provides additional insights. Written professionally. Complete summary and Conclusion. Summarizes the key findings from the report. Formatted to meet expectations. Writing style and length meets expectations. Complete summary and conclusion. Summarizes key findings, but missing a few key points Formatted to meet expectations. Writing style and length marginally meets expectations. Almost completed summary and conclusion. Summarizes key findings, but missing some key points. Formatted to m eet expectations. Writing style and length falls below expectations. Missing summary and conclusion. Does not capture all of the insights collected from the report. Writing style fails to meet expectations. Uses Sources, Reference and Evidence (5%) Cities references and has proper APA style. Citations integrate both professional and industry resources and articles. References from some industry resources. Some citation needs to be fixed. Proper APA style and in -text citations. Some format is not completed. Few mistake s in the formal and in -text citations. Proper APA style and in -text citations. Cities reference is not completed. Some mistake in the formal and in -text citations. Only online references are used. Not following APA style and in-text citations. No references attached to the paper. Not formatted professionally in-text or in the formal reference list. Uses references on Wikipedia. Logic & Organisation (5%) Develops ideas cogently, organizes them and connects them with effective trans itions. Clear and specific introduction and conclusion. Develops unified and coherent ideas within paragraphs with effective transitions. Clear and precise introduction and conclusion. Develops and organizes ideas in paragraphs have sufficient connection. Overall organization relating most ideas together, good introduction and conclusion. Develops and ogranises ideas in paragraphs that are not necessarily connected. Some ideas seem illogical and/or unrelated, unfocused introduction and/or conclusion. Does not develop ideas firmly, uneven and ineffective overall organization, unclear introduction and/or conclusion.