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AFF3111 2007 Sem 2 Solutions

AFF3111 2007 Sem 2 Solutions - Semester 2 2007 Solutions...

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1 Semester 2, 2007 Solutions – Final Examination AFF3111 Personal Financial Planning Question One (12 marks) (a) It is most likely that the economy is at or near the peak of a boom period, though some expansion is possible. (2 marks) (b) Investors should be very wary of the share market at present. It is probably not the time to invest in shares generally just yet, unless it is in specific shares that the investor is confident will increase in value and/or pay good dividends in the future. If investors are prepared to wait a little, they may find that the market may fall, and relative bargains will then be available. (2 marks) (c) Perhaps instead of the share market, investors should consider investing in the short- term money market, short-term securities, or international short-term securities, until the position becomes clearer. (4 marks) (d) Managed investment schemes are ideal for clients who: (i) have poor financial literacy (ii) have little time or interest in managing their own investments (iii) have small amounts of money to invest (iv) want to be fairly well diversified. (4 marks) Question Two (11 marks) (a) Introduction of 15% tax rate on income of complying super funds Introduction of SG scheme Introduction of the Co-contribution Scheme Introduction of SIS Act 1993 and changes to tax deductions for super contributions, limits on benefits, etc. APRA FSRA and new Corporations Act Choice of fund Recent changes resulting from 2006 Budget (any 3 x 1 mark = 3 marks) These changes were brought in to make it easier for people to understand the superannuation rules, to encourage them to make provision for their own retirement, by simplifying and streamlining the system, as well as providing tax concessions, so that long-term savers received advantages for this type of investment. (2 marks) (b) Michael earns $94,200 in 2006/07, of which $8,000 + $1,200 = $9,200 = 9.77% of his total income is derived from employment rather than his own business. Because he satisfies the “10% rule”, he is entitled to a deduction for the contributions he makes.
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