Prof G.John Assignment

Words from the instructor:

Please be sure to pay close attention to the assignment instructions. You should clearly answer all parts of the questions completely, but concisely. Please read the questions carefully to make sure you are answering what is asked. Don’t just provide general information about the topic.

With the financial planning assignments, please show all of your calculations and provide explanations. Without calculations and explanations, if your answer is incorrect, you don’t get any of the points for that question. I can’t give partial credit without seeing what you have done and why.

Financial Planning Assignment Instructions

Financial Planning Assignment 2

Answer questions 1–4 of the Nonfinancial Assets-Capital Expenditures Case Application and 1–4 of the Financial Investments Case Application in Chapters 8 and 9 respectively. When completing the assignment, show all of your calculations along with explanations and provide complete and concise answers to the written portions of the assignment.

Case Application

NONFINANCIAL ASSETS- CAPITAL EXPENDITURES

Unlike Richard, Monica remained very concerned about their financial future. Specifically, she was fearful that the couple would nor have enough money to retire comfortably as they had expected. She asked whether she should postpone or eliminate one improvement on her house. She estimated that a new boiler with a useful life of eight years would cost $20,000 and would save $4,000 a year in heating bills. Monica wanted to know whether they should sell their home now and invest the proceeds. She estimated that marketable securities would provide a return of 5 percent after taxes. They thought the value of the house, now worth

$300,000, would increase by 6 percent a year. A rental in a comparable apartment would cost $2,200 a month. Assume for purposes of this section only that Richard and Monica's marginal tax bracket is 30 percent and other statistics include:

Annual maintenance	$3,000
Property taxes	$5,000
Insurance	$1,500

Case Application Questions

1. Do we know yet whether Monica's fears about retirement are justified? Do you have any

preliminary opinion about this?

2. Do you think she should consider a new boiler now?

3. Complete the boiler problem and give your response.

4. Calculate the projected return on the house for the next year and give your recommendation.

Case Application

FINANCIAL INVESTMENTS

When it came to investments, Richard and Monica could agree on only one thing-that they would have a tough time reaching a decision on asset allocations and individual investments. Previously, Monica had deferred to Richard on investment matters. Given Richard's large recent investment loss, however, Monica was much more forceful in expressing her feelings. She thought that a 40 percent stock, 60 percent bond allocation fit, particularly given the lower level of accumulated wealth they now had. Richard, on the other hand, wanted I 00 percent of the funds placed in stocks. He asked if it wasn't true that stocks always did better than bonds over the longer term. He said that to reach their goals, they needed some aggressive investments. Monica interrupted, saying it was just that "stocks-had-no-long-term-risk" mentality Richard had that led to their investment losses. Richard then volunteered that there was an oil stock, "Energy Gulch," a friend of his recommended that "couldn't lose." He wanted to place 20 percent of his money in it.

Case Application Questions

1. What do you think of the Richard and Monica argument?

2. Using the asset allocation alternatives listed in this chapter as a guide, what should their asset allocation be? Why?

3. What do you think of the Energy Gulch idea? Why?

4. Select one mutual fund you find attractive and give the reasons why you chose it.

Financial Planning Assignment 3

Answer questions 1–4 in Part 1 and 1–3 in Part 2 of the Retirement Planning Case Application in Chapter 12. When completing the assignment, show all of your calculations along with explanations and provide complete and concise answers to the written portions of the assignment.

Case Application

RETIREMENT PLANNING

Part 1

At the retirement planning meeting held recently, Richard and Monica were in agreement that they were well short of the money they needed for retirement at Richard's age 65. Monica said she was thingking of handling investments herself. Richard said he wanted to do it and thought that savings outside the pension given current lower tax rates for capital gains and dividends made sense.

Case Application Questions

1. What do you think of Monica's idea of taking control of retirement investing?

2. What is your opinion of Richard's contention that saving outside the pension was best?

3. What are their alternatives in covering the shortfall in annual retirement savings?

4. What are you recommendations?

Part 2

Brad and Barbara also attended the meeting. They said they were too young to start saving for retirement. Retirement seemed "hundreds of years" away and they wanted to have fun today. They would have plenty of time to save for retirement when they were in their 50s.

Case Application Questions

1. How do you feel about their beliefs?

2. Describe the disadvantages of their approach.

3. Suppose they wanted to have $1 million accumulated in 40 years. Indicate how much money would have to be saved each year if they started now. Assume that the money would be accumulated in personal accounts and earn 6 percent a year after taxes.

Financial Planning Assignment 4

Complete the Retirement Capital Needs Analysis problems 18.2, 18.3, and 18.4 at the end of Chapter 18. When completing the assignment, show all of your calculations along with explanations and provide complete and concise answers to the written portions of the assignment.

Problems

	18.2	Eleanor needs $40,000 a year to live on in retirement net of the income she will receive.
		She will be retiring in 22 years and is funding for a 25-year retirement. The inflation rate is expected to be 3.5 percent a year and the after-tax return on her investments 6 percent.

a. How much will the short fall amount to at the beginning of the retirement period?

b. What lump sum will she need at the beginning of the retirement period?

c. What is the required yearly savings?

18.3 Frank, age 28, wants to calculate his resources in real (inflation-adjusted) terms. Calculate the amount of resources made available by age 65 retirement if $18,000 a year is saved. Assume that outflows from ages 65 to 90 are at the rate of $27,000 a year. Tue projected inflation rate is 4 percent, and the anticipated investment return is 6 percent.

a. How much in new savings will Frank have available at age 65 before subsequent withdrawals?

b. How much will he have left at age 90?

c. What is the present value of that sum at age 65?

d. How much will he have to save per year to exactly meet his need?

18.4 The Smiths had $110,000 in savings at age 51. They had a desired retirement age of 65. They want to fund through age 92. Assume a 4 percent inflation rate and a 5 percent after-tax rate for investment both pre-and postretirement. They have household income of $140,000, which is increasing at the rate of inflation. Their expenditures including taxes are $125,000 a year. They estimate that in retirement they will receive $28,000 a year together in Social Security and Mr. Smith will receive a $12,000-a-year pension, both in today's dollars. Their retirement expenditures would be $90,000 a year in today's dollars.

l. Calculate

a. The lump sum needed at retirement.

b. Current assets available at retirement.

c. Yearly savings needed.

d. The difference between needs and resources.

2. Analysis

a. Is their retirement plan achievable as is?

b) If not, what are the alternatives that could help reconcile needs and resources?

c) What is your recommendation?