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Module 1

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Student Declaration

I declare the following statement to be true:

I hereby acknowledge that this submission is my own work, based on my personal study and/or research. I have acknowledged sources and resources used in the preparation of my submission whether they are books, articles, reports, internet searches, or any other document.

I also certify that the assessment has not previously been submitted for assessment in any other subject, or at any other time in the same subject and that I have not copied in part or whole or otherwise plagiarised the work of other students and/or other persons.

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Instructions

In order to clearly identify your answers, please type inside the boxes. As you need more room the size of the boxes will automatically increase. Be sure to save your work regularly! When saving the file please do so in this format: Name-Module#. For example: Steve-McKnight-Module1.doc

Part One: Theory Training

Q1. Outline how the following participants could benefit from studying this course and list three specific applications each participant could implement:

A. A real estate agent

Outline

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B. Not-for-profit charity providing community housing

Outline

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C. Your accountant

Outline

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Q2. Define the following terms:

Competency

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Proficiency

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Investing

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Asset

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Market inefficiency

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Q3. Using the Rule of 72, how long would it take the following investments to double in value [include your calculations]?

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A term deposit earning 3% interest p.a.

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A managed fund earning an average 5% return p.a.

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A property earning –5% income, but +12% capital appreciation

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A property earning +2% income and +8% capital appreciation

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Q4. Explain the difference between simple and compound interest.

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Q5. Calculate how much return would be generated on the following investments. [Include your calculations if completing by hand, or else you may use a well labelled spreadsheet and attach it to your assessment submission.]

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$10,000 invested for 10 years earning 5% per annum simple interest paid at the end of the term of the investment

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$10,000 invested for 10 years earning 5% interest, compounding monthly

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$1,000 per month, invested for 25 years at 12% compounding monthly

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Q6. The definition of investment provided in Session 2 included the following component: ‘As interest, income or appreciation in value’. Define each and explain how it is generated.

Interest

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Income

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Appreciation in value

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Q7. Using the illustration of acquiring a property, explain how the rationale about whether or not to purchase differs depending on whether the dwelling will be a lifestyle or investment asset.

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Q8. Explain the following different classes of assets and name the type of return(s) that can be accessed by owning them.

Cash and fixed interest

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Shares/equities

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Property

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Business

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Q9. How can an investor’s attitude towards risk influence which asset class is more appropriate for his or her situation?

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Q10. Using the example of a +/- movement of $50,000 in price, quantify and explain how the buying power of a first homebuyer’s 20% deposit improves/deteriorates as the property market rises and falls. [Include calculations.]

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Q11. Using the example of $10,000 and an average rate of 30% tax, explain how a dollar of interest saved (by repaying a mortgage attracting 7% interest) can be a better option than investing the money in a term deposit. [Include calculations.]

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Q12. What is an investment’s liquidity and how might it be of varying relevance to the following investors? [include calculations]

Definition of liquidity

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Person receiving the aged pension

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Person buying a negatively-geared property

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Q13. Using the illustration of an unrenovated property, explain how property investors can use their skill to capitalise/profit from market inefficiencies.

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Q14. How can investors buying ‘efficient’ properties (such as a brand new apartment) make money? To what extent are they in control of the outcome(s)?

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Q15. How can a person who grew up in a family with poor money habits acquire the skills needed to become a better money manager? What would you say was the ‘first step’ in doing so?

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Q16. Using the points of difference below, draw a distinction between ‘speculator’ and ‘outcome driven’ investors

The mindset of purchasing assets

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The approach to strategy

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The approach to management

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Control over the profit outcome

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Q17. Research and answer the following questions [attach evidence of your research to your assessment submission].

What is the current fortnightly minimum single aged pension payment?

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What is the latest weekly cost estimate by ASFA for a single person to afford a modest lifestyle?

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What is the cost to live a comfortable lifestyle?

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Q18. Assuming an investor can achieve a net 9% after-tax return, how much capital would be invested to achieve an after-tax income of $80,000 per annum? [Include calculations.]

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Q19. Assuming an investor earns an after-tax income of $60,000 and had $750,000 of investing capital available, what after-tax percentage return would be needed to generate the equivalent investment income to three days of ‘work’? [Include calculations.]

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Q20. How does a person’s access to time, money, skill and personal purpose influence their investment options?

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Q21. If the investor is unhappy with their choices, how can they create a different outcome? What has to happen to make this a reality?

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Q22. How can picking and using an ‘investing advisory team’ help overcome an investor’s time, money and skill shortfalls?

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Q23. It’s been said that ‘to cease to move forward is to backslide’. Using specific examples that an investor may implement, explain how accountability can be used to stop backsliding.

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Part Two: Practical Training and Research Assignment

Background

This exercise asks you to research and collate various different sources of informa­tion to calculate the likely after tax return of a term deposit.

Assumed scenario

Your aunt sadly passes away and leaves you $50,000 in her will. You are unsure what to do with it, and a friend suggests putting it in a term deposit for six-months.

Requirement

Note: You will need to provide and submit evidence that you have completed each of these steps.

> Step One: Scan the major newspapers or internet to identify a relevant advertisement for what you think is an attractive rate of interest for a six-month term deposit for $50,000. Cut it out and highlight the interest rate and any conditions to the offer.

> Step Two: If it is not otherwise stated, call the relevant institution to clarify the basis on which the interest will be paid (simple or compound). Request confirmation from them in writing (email or a print-out of the terms and conditions is sufficient).

> Step Three: Also confirm and record the penalties (if any) that would apply if you needed to access your money before the six months were up.

> Step Four: Calculate the interest you expect to receive based on the parameters of the offer.

> Step Five: Go to and check the competitiveness of the rate of interest you have been quoted. Print out a list of current alternatives and, if possible, highlight three higher rates/offers.

> Step Six: Recalculate the interest received on those higher offers.

> Step Seven: Make a brief comment whether, considering the perceived risk, you believe those higher offers provide a better return.

> Step Eight: Assuming you have taxable income of $60,000 from employment, visit to clarify what percentage income tax will you pay on the interest income you receive (include Medicare). How much income tax can you expect to pay?

> Step Nine: Visit and note down the current annual CPI rate (seasonally adjusted).

> Step Ten: Based on your original choice of term deposit, calculate:

a) The after-tax and inflation dollar return

b) The after-tax and inflation percentage return.

> Step Eleven: Research and identify the Commonwealth Bank of Australia’s standard variable home loan interest rate (use the comparison rate).

> Step Twelve: Assuming you could either have invested the money in your chosen term deposit, or paid it off a home mortgage attracting the CBA’s standard variable home loan interest rate, calculate which would provide the best return.

> Step Thirteen: Write a comment about your experience and findings as a result of completing this research assignment.

Part Three: Personal Application Questions

Note: These assessment tasks are optional, and have been provided to help you apply your learning to your own personal investment situation.

Q1. List three specific outcomes you want to achieve from studying this course.

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|2. |

|3. |

Q2. For each of the above points you noted in Q1, what do you think will be the issues and distractions that may prevent you from achieving your desired outcomes? How can you overcome them/mitigate them?

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|2. |

|3. |

Q3. Note down your current mix of investment assets across the following classes (by dollar and percentage of total).

|Cash/Fixed Interest |Equities |Property |Businesses |

|$ |$ |$ |$ |

|% |% |% |% |

Q4. Note down your current mix of investment income across the classes for the past 12 months (by dollar and percentage of total).

|Cash/Fixed Interest |Equities |Property |Businesses |

|$ |$ |$ |$ |

|% |% |% |% |

Q5. What ‘ball park’ percentage annual return do you think you have received on average across each class over the past 12 months?

|Cash/Fixed Interest |Equities |Property |Businesses |

|% |% |% |% |

Q6. How do the returns you’re achieving reflect the amount of time and effort you have put into your investing?

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Q7. What have been the major influences on your attitude towards money and money management? Put a ⎭ or ⎬ indicating whether you feel they have been positive or negative influences.

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Q8. Complete the table below (you’ll need to nominate an after-tax return you think is achievable).

|How much independent net after-tax income would you like to have each year? |$ |

|What after-tax investment return is achievable/realistic for you? |÷ $ |

|This is your required capital base |+ $ |

|Deduct your current capital base |– $ |

|This is how much more capital you need to accumulate/invest at your nominated return |= $ |

Q9. Complete the missing text to ascertain your financial goal

My financial goal:

To have an income of $__________ per annum

(annual dollar income)

As a result of having $__________ invested

(total capital invested)

At an average __________% return

(percentage annual return)

On or before _____________________

(date)

I now have _____________________ left to achieve my goal

(# days)

Name: Date:

Q10. Having set the above goal, answer the following questions:

What’s the likely financial outcome if you don’t achieve the goal?

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How does achieving the goal benefit you, and in what specific ways?

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How can you keep yourself accountable to keep making progress?

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Who can keep you accountable to keep making progress?

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Q11. What additional resources do you need to achieve your goal?

Time:

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Money:

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Skill:

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Other:

Q12. Who do you need on your team who is either missing or deficient?

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