Nathan is a senior biochemist employed by a large pharmaceutical company based in Sydney. - Nathan enjoys his lifestyle of renting an apartment near his workplace which saves his travel time between home and office. As the rental and living expenses increase, Nathan has been considering purchasing an apartment at the same location. - During weekends and holidays, Nathan spends his time travelling around the country with his friends, adventuring in nature. His favorite outdoor activities are kayaking and abseiling. - Nathan is a risk-taker both personally and financially. 

 

Jake and Sam: - Jake and Sam have been together for 15 years and have lived in their current house since their marriage. - Both Jake and Sam are working hard to pay off their loan repayments and support their kids in studying in a private school. - Jake and Sam are prudent and careful with their budget. However, due to their busy work commitments, they need to employ a helper to clean the house and look after their kids from time to time. - Sam has an older sister living in Europe, she hasn't seen her sister for a long time since the covid-19 outbreak. Jake and Sam are planning a two-week trip to Europe in 18 months' time to visit Sam's sister.

 

QUESTIONS- 

The average market price for a one-bedroom apartment at Nathan's desired location is around $900,000. Using a forecast model incorporating the inflation rate, interest rate change and other market leading indicators, the average market price is estimated to be the same in 5 years despite the ups and downs during the period. A loan for 80% of the purchase price can be approved by the bank. This means Nathan must fund the remaining 20% of the purchase price from his own cash.

 

Assuming Nathan's financial position will stay the same in the next 5 years and a constant return of 6.5% per annum, assess Nathan's financial capacity to make the 20% loan down payment for a $900,000 apartment in five years' time. The cash balance ($16,000) should not be used as part of loan down payment as it is the emergency fund.
 

After Nathan purchases the apartment near his workplace, he can save the annual rental payment of $39,000.  Assess Nathan's financial capacity to make the monthly loan repayment (interest plus principal) once the loan is taken to purchase the apartment. The interest rate of the loan is 5.5% per annum and the term is 20 years. 

 

Alternatively, Nathan can choose to buy a property that is located a further distance from his workplace but where the average apartment price could be cheaper. Nathan was suggested by a real estate agent to buy an apartment in a suburb that requires 40 mins of driving to where he works during peak hours. The average price of a similar apartment in that area is around $700,000. However, the travel expenses will increase by $5,000 per annum due to the additional travel distance.  If the return for savings and loan conditions are identical, assess whether this option is more financially feasible. In your answer, compare the two options based on key numbers and calculations needed.

 

Transcribed Image Text:

You work as a Financial Planning Adviser and have been asked to assist with two new clients. You have received background information on each client (see below). Client Name Age Status Dependents Occupation Net Income (after super and after tax) Expenses (living and financial) Major assets Major liabilities Major financial goals Nathan 37 Single Nil Biochemist AUD125,000 per year AUD90,000 pa Cash at bank AUD16,000 Superannuation AUD150,000 Car AUD65,000 Investment Portfolio AUD35,000 Car loan AUD35,000 Purchase a one-bedroom apartment in the near future Jake and Sam 45 and 41 Married, joint owners of the house Two (age 7 and 9) Doctor (Jake) and Engineer (Sam) AUD180,000 (Jake) and AUD150,000 (Sam) per year AUD290,000 pa Cash at bank AUD20,000 Superannuation AUD220,000 House AUD2.5 million Investment portfolio AUD12,000 Home loan AUD 1.6million (Interest plus principal loan) Fund a two-week trip to Europe in 18 months You have had an introductory meeting with each new client to obtain a better understanding of their circumstances, financial goals and risk preferences. Below are some notes from those meetings. You work as a Financial Planning Adviser and have been asked to assist with two new clients. You have received background information on each client (see below). Client Name Age Status Dependents Occupation Net Income (after super and after tax) Expenses (living and financial) Major assets Major liabilities Major financial goals Nathan 37 Single Nil Biochemist AUD125,000 per year AUD90,000 pa Cash at bank AUD16,000 Superannuation AUD150,000 Car AUD65,000 Investment Portfolio AUD35,000 Car loan AUD35,000 Purchase a one-bedroom apartment in the near future Jake and Sam 45 and 41 Married, joint owners of the house Two (age 7 and 9) Doctor (Jake) and Engineer (Sam) AUD180,000 (Jake) and AUD150,000 (Sam) per year AUD290,000 pa Cash at bank AUD20,000 Superannuation AUD220,000 House AUD2.5 million Investment portfolio AUD12,000 Home loan AUD 1.6million (Interest plus principal loan) Fund a two-week trip to Europe in 18 months You have had an introductory meeting with each new client to obtain a better understanding of their circumstances, financial goals and risk preferences. Below are some notes from those meetings.

Answer rating: 100% (QA)

Based on the information provided lets assess Nathans financial capacity for the different scenarios mentioned 1 Nathans Financial Capacity for a 20 Loan Down Payment Nathans desired apartment price i... View the full answer