Question 1.a (15 marks)

Ingrid has requested your advice in relation to her objective of purchasing a second apartment (as an investment) within two years.

In your response address two key issues set out below.

Issue 1: the financial capacity to undertake the necessary savings plan for two years for the deposit

The interest on the deposit savings account is 1%. The existing cash at bank and share portfolio ARE NOT available for the deposit.

Based upon a preliminary review, the bank has told Ingrid that the savings plan for two years is only viable if some of the overtime payments are included but did not specify the amounts involved. The overtime payments are not certain and not as predictable as salary payments. Ingrid is nervous about a savings plan that relies upon the overtime payments. The bank also stated that using salary payments only, the plan is viable if extended to three years.

Ingrid has requested the following:

- the savings plan amount per month (4 marks)

- the shortfall with reference to her existing budget per month (2 marks)

- your opinion on the key issues to consider in deciding between a two year plan or a three year plan and your recommendation (3 marks)

Client Name Ingrid Clare and Alan Age Status Dependents Occupation 30 Single, owner of apartment Nil Helicopter Pilot 52 and 51 Married, joint owners of house Two children (age 12 and 14) Manager of hospitality business (Clare) and High School teacher (Alan) AUD145,000 pa (Clare) and AUD115,000 pa (Alan) from salary AUD225,000 pa from salary Net Income (after super and after tax) Expenses (living and financial) Major assets AUD175,000 pa including the bank loan AUD165,000 pa including the bank loan Cash at bank AUD10,000 Share portfolio AUD 100,000 Superannuation AUD80,000 Apartment AUDO.7 million Cash at bank AUD25,000 Superannuation AUD650,000 House AUD1.1 million Major liabilities Bank loan for the apartment AUD350,000 (interest only loan) Purchase a second apartment as an investment within two years (price approx AUDO.8 million) with 20% cash and 80% bank loan Bank loan for the house AUD525,000 (interest only loan) Operate a conservative budget until the children complete high school Major financial goals Ingrid: Is an experienced helicopter pilot that works for a company that provides emergency medical transport services. Typically, Ingrid works 12 hour shifts in accordance with a roster. Sometimes, when attending to an emergency call, Ingrid must work extended hours until the call is completed. These extended hours are paid in addition to her salary as overtime. In a typical year, the overtime equates to an additional payment of approximately 20% of salary. Ingrid lives in a two bedroom apartment and is planning to purchase a second apartment as an investment. Ingrid is relatively well paid and spends significant amounts of money on fashion, entertainment and overseas holidays. Ingrid has a good understanding of financial markets and is familiar with the concept of risk and return. Both personally and financially, Ingrid is considered to not be a risk taker