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FINA200 - Winter 2010, Section W PERSONAL FINANCE - FINA200 Winter 2018, Section OL Case 2: March 29, 2018 (due by April 5, 2018, 11:59p.m.) Covering Chapters 7 – 10, and 13 – 15) _______________________________________________________________________ Student Name:Student ID: _______________________________________________________________________ PLEASE NOTE INSTRUCTIONS BELOW -Write your name and student ID above. -Save the file to upload as: last name plus student number (example: Parla8654923). -This is an individual assignment, to be completed by you alone. -There are 6 pages to this case including the cover page – please ensure that you have all 6 pages. -Case 2 consists of four mini-cases: respond directly on the exam in the space provided or by highlighting the response. -You may submit your solution in English or French; acceptable submission formats include Word (.docx or.doc) or PDF. EXCEL is NOT accepted. -All responses with calculations are to be to two decimal places. -Tables can be found at the end of the Case; you will need outside sources to respond. This Case is on 20 marks but is worth 10% of your grade. For marking purposes only: Question 1 Question 2 Question 3 Question 4 Question 5 Question 6 Question 7 Total /5 /2 /1.5 /1 /3 /1.5 /6 /20 Four (4) Mini-Cases (20 marks) Please write (or where required, highlight) your response in the template or space provided. Mini-Case A: Question 1: (5 marks - .5 marks each) Go to www.morningstar.ca , a great investment research site. Search for the mutual fund CIBC Dividend Growth to respond to the mutual fund questions below. a) What is the Management Expense Ratio (MER) in the CIBC Dividend Growth fund? __________ b) What is the reported fund’s return since its inception? __________________________________ c) What is the minimum investment amount needed to get into this fund and the minimum needed thereafter? _____________________________________________________________________ d) What type of fee is charged: No-load, Front-end load or a Back-end load? ___________________ e) What is the Net Asset Value (NAV) Per Share to buy into this fund? ________________________ f) Assume you had $5,000 to invest in this fund, how many mutual fund shares could you purchase if NAV was $33? ____________________________________________________________________ g) Assume you had $5,000 to invest in this fund, and assume that this fund had a front-end load of 2%, how many mutual fund shares could you purchase, using the same $33 NAV? __________________ h) What is the investment objective and strategy of this fund ________________________________________________________________________________________________________________________________________________________________________ i) Under the asset allocation, what percentage is invested in Canadian Equity _____% j) Name the 2 top equity holdings in this fund? 1. ______________________ 2. ______________________ Question 2: (2 marks – 1 mark each) Assume Nancy purchased 1,000 shares of the CIBC Dividend Growth fund for a total of $3,300, and she later decides to sell 500 shares once it has risen to $55, calculate her capital gain and her taxable capital gain. Calculation of the capital gain: Calculation of the taxable capital gain: Mini-Case B: Question 3: (1.5 marks - .5 marks each) Drew just got off the phone with her bank and was told that her Gross Debt Service ratio (GDS) ratio was 32% and that she was “close to the limits” regarding the home that she was looking to purchase. She has no idea what the bank is referring to and was too upset to ask them any questions. She has asked you to help clarify what the bank was referring to. She has provided you with the same information that she gave to them. a) If Drew has a 32% GDS ratio, calculate the monthly principal and interest payment that this would represent for her. Drew’s annual gross income $65,000 Monthly property taxes on the potential home $170 Monthly heating costs on the potential home $125 Monthly car loan $400 Gross Debt Service ratio (GDS) calculation: (.5 mark) b) Based on your response in a), what is Drew’s Total Debt Service ratio? Total Debt Service ratio (TDS) calculation: (.5 mark) c) Based on the two ratios, is the home affordable for Drew, explain your reason? Total Debt Service ratio (TDS) calculation: (.5 mark) Mini-Case C: Question 4: (1 mark) Sophia currently has $636,988 in her Registered Retirement Savings Plan. She has never contributed to her Tax-Free Savings Account (TFSA) but is ready to contribute the maximum that is permitted (including carry forward contribution room) now in 2018. If she expects her investments to increase by 6%, compounded monthly, how much will she have accumulated in 5 years? (See Table B) (1 mark) Calculation: (1 mark) Question 5: (3 marks - .5 marks) Sophia is a top executive in her father’s business. She is married to Lenny. Both her and Lenny just turned age 65 and have always lived in Quebec. Lenny was a stay-at-home dad and cared for their two children who are now adults. Lenny has never worked and has decided to continue to remain at home and now care for his 4 grandchildren ages 2 and 3. Sophia is looking to you for the following answers to her questions: a) At age 65, will Lenny be eligible for Old Age Security (OAS)? Yes or No b) At age 65, will Lenny be eligible for Quebec Pension Plan (QPP)? Yes or No c) Is Lenny eligible to contribute to a Tax-Free Savings Account? Yes or No d) Is Lenny eligible to contribute to a Registered Retirement Savings Account (RRSP)? Yes or No e) Sophia is looking at her options when it comes to applying for her Quebec Pension Plan (QPP). She knows that the age at which she begins receiving this retirement pension will affect her income for the rest of her life, so wants to choose wisely. She is weighing two scenarios, one is to start receiving this pension at age 65 while the other scenario she is considering is to delay to the latest age possible which is __________. If she does so, it would mean that she would receive ________% more than if her QPP started at age 65. Question 6: (1.5 marks) Sophia believes that her Old Age Security (OAS) pension will be subject to clawback. She is trying to understand what it means. The maximum OAS pension in 2018 is $7,040. Sophia’s net income is $120,000. The clawback starts at the minimum threshold of $75,910 to the maximum threshold of $122,843 – how much will Sophia keep of her OAS when the clawback rate is 15%? Calculation: Mini-Case D: Question 7: (6 marks – 1 mark each) Dylan is 80 years old and lives in Quebec. He is wealthy as he has worked hard his entire life. Dylan never married, nor had children. He is now looking to prepare a Will as he would like to gift his entire estate to charity. He knows that in addition to his own siblings and his many nieces and nephews that they will be very surprised to not receive an inheritance from him. His wishes however are to divide everything amongst 3 charities that are important to him and knows that it is the right thing to do as no one in his family has ever been close, visited or invited him to any family occasions. Dylan knows of three types of Wills that he can have prepared. a) Name them: 1._______________________________________________ 2._______________________________________________ 3._______________________________________________ b) Based on the above, which one of the three do you recommend that Dylan avoid: ___________________________________________________________________ c) State your reason: ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ d) If Dylan dies before he prepares a Will, what is this called: _________________________ The End - Good Luck! TABLE A 2017 Combined Federal and Quebec Personal Income Tax Brackets and Tax Rates 2017 Taxable Income 2017 Tax Rates 2017 Taxable Income 2017 Tax Rates first $42,705 28.53% over $91,831 up to $103,915 45.71% over $42,705 up to $45,916 32.53% over $103,915 up to $142,353 47.46% over $45,916 up to $85,405 37.12% over $142,353 up to $202,800 49.97% over $85,405 up to $91,831 41.12% over $202,800 53.31% TABLE B Tax-Free Savings Account (TFSA): Annual Limits Years Annual Limit Years Annual Limit Year started 2009 $5,000 2014 $5,500 2010 $5,000 2015 $10,000 2011 $5,000 2016 $5,500 2012 $5,000 2017 $5,500 2013 $5,500 2018 $5,500 TABLE C Time Value of Money Formulas Simple Interest I = P x R x T Future (FV) of a single sum Future Value of an Annuity or series of payments Present Value (PV) of a single sum Present Value of an Annuity or series of payments or Time Value: FV = Future value i = Annual interest rate PV = Present value n = Number of time periods PMT = PMT or regular annuity When compounding is more than once a year, FV = PV (1 + i/m)nm m = Number of compounding periods per year Page 5 of 6 ú û ù ê ë é 1 - ) + 1 ( = i i PMT FV n ú û ù ê ë é i i PMT PV n ) + 1 ( - 1 = - ú û ù ê ë é i i PMT PV n ] ) + 1 /( 1 [ - 1 =