Case Study ( total 2100 words required)

In January 2021, you met Mr. Jones who had recently inherited an estate worth 500,000

Mr. Jones is aged 30, currently not married but has a long-term partner. Mr. Jones is currently in full-time employment earning 67,500 per annum, whilst his partner earns 18,000 p.a. They have no other dependents.

Mr. Jones currently rents a property but is looking to purchase a home in the near future with his partner. He has a small portfolio of investment that are made up of the following:

• A savings account
• An ISA in the name of Mr. Jones
• An ISA in the name of his partner
• A portfolio of banking shares in the name of Mr. Jones
• A portfolio of mining shares in the name of his partner
• A government bond in the name of Mr. Jones
• A portfolio of physical holdings of precious metals
• A unit within a unit trust that focuses on energy firms

Mr. Jones is thinking about further diversifying his portfolio but is uncertain about the performance of his investment given the uncertainty within the financial markets. He has been able to acquire the following information

• Current return on the market = 2%
• Current risk free rate = 0.5%

Having spoken to one of his relatives, Mr. Jones has been advised to consider his insurance and assurance position given his desire to purchase a home.

Additionally, one of his friends has also suggested that he sells his shares with low PE Ratios and low EPS and buy shares in a leading mining company as he has just read that the company are about to launch a new project exploring a potential new mining site in central Russia.

The following questions are based on the information given in the case study above. There are 5 question

Question 1

1. Critically evaluate the core characteristics of Mr. Jones current investment portfolio above. Where possible, provide advice on alternative investment choices given your evaluation of the current financial markets.

2. Explain the concept of diversification.

Question 2

Although Mr. Jones does not have any dependent, his partner and he have been thinking about starting a family. In light of this and his personal financial situation, Mr. Jones has been thinking about life assurance products.

1. Critically explain the core types of life assurance products available to Mr. Jones.

2. Explain the concepts of adverse selection and moral hazard in relation to the provision of insurance products.

Question 3

Mr. Jones is concerned about his pension when he retires given the numerous new reports about pension blackholes. He currently contributes to national insurance and his companys occupational pension. The occupational pension is a defined benefit final-salary pension scheme. There has been some speculation that his company might shift to a defined contribution scheme.

1. Calculate the pension Mr. Jones would have received under the Final Salary pension scheme assuming:

• he retired aged 70
• upon retirement he had completed 20 years of service/contributions
• his pension paid a lump sum of 3 years salary
• his pension was an N/80

2. With reference to the Annuity tables on page 8 calculate how much a Money Purchased scheme would need to pay assuming Mr Jones wanted an Inflation linked Annuity starting at a similar amount to the N/80 pension that was calculated in (a) based on a Single Life with 3% escalation.

3. Critically discuss the reasons as to why Mr. Jones company might be thinking about moving to a defined contribution scheme

Question 4

1. Critically evaluate the core types of mortgage products available to Mr. Jones. You should also consider the types of interest rates chargeable.

1. Critically discuss the benefits of a buy-to-let property as an investment.

Question 5

Personal inheritance tax issues have been a significant issue in the national new in recent time. Given that, Mr. Jones is due a 500,000 inheritance he is very worried about his inheritance tax position.

1. Explain to concept of inheritance tax to Mr. Jones

2. Explain the importance of a will in relation to inheritance tax

3. Advise him on the ways in which he is able to reduce his inheritance tax liability