Department of Finance, Risk Management and Banking

Transcription

1 FIN2602/101/3/2016 Tutorial letter 101/3/2016 Personal Financial Management FIN2602 Semesters 1 & 2 Department of Finance, Risk Management and Banking IMPORTANT INFORMATION: Please activate yourmyunisa and mylife addresses and ensure you have regular access to the myunisa module site FIN S1 or S2. Note: Please note that this module is offered online only. All material will be made available on myunisaunder official study material and/or under study units. However,in order to support you in your learning process, you will also receive some study materials in printed format.

2 CONTENTS Page 1 INTRODUCTION To get started MODULE FORMAT: FIN Purpose Outcomes LECTURER AND CONTACT DETAILS Lecturer Department University MODULE RELATED RESOURCES Prescribed books Recommended books Joining myunisa Other resources Printed support materials HOW TO STUDY THIS MODULE ONLINE What it means to study fully online? The myunisa tools you will use ASSESSMENT Assessment plan General assignment numbers Unique assignment numbers Due dates for assignments Submission of assignments EXAMINATION

3 FIN2602/101 1 INTRODUCTION Dear Student Welcome to the module Personal Financial Management (FIN2602).You have enrolled for an interesting yet challenging module. To be successful in this module, you will have to devote at least 120 hours to reading, summarizing and doing assignments. On completion of this module you should be able to identify the most important factors in the different personal financial planning areas, which can influence your financial future positively or negatively. Do not hesitate to contact me (on myunisa, by or by telephone) if you are experiencing problems with the content of this tutorial letter or any aspect of the module. I sincerely hope that you find this module, as well as your online learning experience interesting and rewarding and trust that you will complete the module successfully. Please also provide Unisa with your cellular number because important announcements may be sent to you by sms. Also check your mylife address regularly for announcements. 1.1 To get started Please note that this module is offered fully online and you therefore need to go online to see your study materials and complete the learning activities for this course. Go to the website here: and login with your student number and password. You will see FIN S1/S2 module site in the row of modules in the orange blocks across the top of the webpage. Remember to also check in the more -site tab if you cannot find it in the orange blocks. Click on the module you want to open and read the Welcome page. In addition, you will receive this tutorial letter and a printed copy of the online study materials from your module. While these printed materials may appear to be different from the online study materials, they are exactly the same and have been copied from the online myunisa website. 2 MODULE FORMAT: FIN Purpose The purpose of this module is to enable you to identify the most important factors in the different personal financial planning areas, which can influence your financial future positively or negatively. 2.2 Outcomes On completion of this module, you should be able to apply the steps in the personal financial planning process apply the principles of preparing the household budget do calculations regarding the time value of money apply the steps involved in handling a debt crisis identify the steps in calculating tax liability explain the starting as well as the buying of a business apply the steps in the estate planning process draw up a valid will explain the influence of lifestyle on personal financial planning apply investment principles and criteria to different investment alternatives identify and quantify the cost items involved in buying a residence explain the process of investing in fixed property identify the homework to be done before investing in foreign countries identify the different household risks as well as methods to protect yourself 3

4 against these risks explain health care before and after retirement illustrate and explain the income gap after retirement explain the homework that should be done before you can emigrate 3 LECTURER AND CONTACT DETAILS 3.1 Lecturer The primary lecturer for this module is Nico Swart. Department: Finance, Risk Management and Banking Telephone: swartnj@unisa.ac.za Calculator/calculation queries: Mr Abram Phenya; phenyam@unisa.ac.za; Department The contact detail for the Department of Finance, Risk Management and Banking: Telephone: Finman@unisa.ac.za 3.3 University To contact the University, you should follow the instructions in the my Unisa brochure. Remember to have your student number available when you contact the University. When you contact the Lecturers, please do not forget to always include your student number and module code. This will help the lecturers to assist you. 4 MODULE RELATED RESOURCES 4.1 Prescribed books You have to purchase the following book: Personal Financial Management rd ed. Cape Town: Juta. Author: Nico Swart. 4.2 Recommended books There are no recommended books for this module. 4

5 FIN2602/ Joining myunisa If you have access to a computer that is linked to the internet, you can quickly access resources and information at the University. The myunisa learning management system is Unisa's online campus that will help you to communicate with your lecturers, with other students and with the administrative departments of Unisa all through the computer and the internet. You can start at the main Unisa website, and then click on the myunisa orange block. This will take you to the myunisa website. To go to the myunisa website directly, go to When you are on the myunisawebsite click on the Claim UNISA Login at the right-hand side of the screen. You will then be prompted to give your student number to claim your initial myunisa as well as mylife login details. Please consult the publication my Unisa which you received with your study material for more information on myunisa. 4.4 Other resources Printed support materials Because we want you to be successful in this online module, we also provide you with some of the study materials in printed format. This will allow you to read the study materials, even if you are not online. These printed study materials will be sent to you at the beginning of the semester, but you do not have to wait to receive them to start studying You can go online as soon as you register and all your study materials will be there. Therefore, the printed materials are not something that you need to wait for before you start with the module. It is only an offline copy of the formal content for the online module. This will give you the chance to do a lot of the studying of this module WITHOUT having to go to the internet or to an internet cafe. This will save you money, of course, and you will be able to take as much time as you need to read -- and to re-read -- the materials and do the activities. It is therefore very important that you log into myunisa regularly to check for the following: Check for new Announcements. You can also set up your mylife so that you receive the Announcement s on your cell phone. Participate in the Discussion forum. We hope that this system will help you to succeed in this online module. At the same time, you MUST go online in order to complete the assignments on time -- and to get the most from the online course. Remember, the printed support materials are a back-up to everything that is found online, on myunisa. There are no extra things there. In other words, you should NOT wait for the Printed support materials to arrive to start studying. 5 HOW TO STUDY THIS MODULE ONLINE 5.1 What it means to study fully online? These modules are taught fully online this means that it is totally different from some of your other modules at Unisa. This means that all your study materials and learning activities are designed to be online, on myunisa. Even though we give you a printed copy to support your studies, the module is designed for online. This means that all of your assignments must be submitted online or by post. 5

6 This means that all of the communication between yourself and the university also happens online by , in Discussions and through Questions and Answers. You can use all of these ways to ask questions and contact your lecturers. This also means that your lecturers will communicate with you in the same way through s, with Announcements, in Discussions and with Questions and Answers. 5.2 The myunisa tools you will use All of the information about myunisa tools is located on the myunisa website for this module, in Unit 0. However, we thought it was important to stress the tools that will be used for your formal Assignments. In this module there are different myunisa tools: Discussions: This tool is the place for online discussion forums, where you share your ideas and insights with the other students in your small groups. Inside the Discussions tool, there may also be several other discussion forums where you can share ideas and post your discussions online. We also give you place to just speak socially with the other students in the course -- we call this the"social Indaba", because in several African languages, the Indaba is a place where people gather to interact socially. Assignments: You can also ask questions with the Questions and Answers tool. 5.3 E-tutors Please be informed that, with effect from 2013, Unisa offers online tutorials (e-tutoring) to students registered for modules at NQF level 5, 6 and 7, which means qualifying first, second and third year modules. Once you have been registered for a qualifying module, you will be allocated to a group of students with whom you will be interacting during the tuition period as well as an e-tutor who will be your tutorial facilitator. Thereafter you will receive an sms informing you about your group, the name of your e-tutor and instructions on how to log onto myunisa in order to receive further information on the e-tutoring process. Online tutorials are conducted by qualified e-tutors who are appointed by Unisa and are offered free of charge. All you need to be able to participate in e-tutoring is a computer with internet connection. If you live close to a Unisa regional Centre or a Telecenter contracted with Unisa, please feel free to visit any of these to access the internet. E-tutoring takes place on myunisa where you are expected to connect with other students in your allocated group. It is the role of the e-tutor to guide you through your study material during this interaction process. For you to get the most out of online tutoring, you need to participate in the online discussions that the e-tutor will be facilitating. There are modules which students have been found to repeatedly fail, these modules are allocated faceto-face tutors and tutorials for these modules take place at the Unisa Regional Centres. These tutorials are also offered free of charge, however, it is important for you to register at your nearest Unisa Regional Centre to secure attendance of these classes. 6 ASSESSMENT 6.1 Assessment plan Assignments are seen as part of the learning material for this module. As you do the assignments, study the reading texts and discuss the work with fellow students.pay attention to the assessment criteria for each assignment. 6

7 FIN2602/101 You may submit assignments either by post or electronically via myunisa. Assignments may not be submitted by fax or . For detailed information and requirements as far as assignments are concerned, see the brochure my Unisa that is available on the Unisa web-site. Compulsory assignments There are two compulsory assignments for this module. There are non-negotiable submission deadlines for each of the assignments of this module. The assignments contribute to your year mark. Year marks Your year mark, based on the marks obtained for the two compulsory assignments, contributes 20% towards your final mark, while your examination mark contributes 80%. The combined weighted average of your year mark and examination mark must be 50% or higher for you to pass the module. However, you must obtain a minimum of 40% in the examination, regardless of your year mark. If you obtain less than 40% in the examination, your year mark will not be taken into account and you will fail. For example: Assignment 01 mark = 50% Assignment 02 mark = 90%. These marks each contribute 50% towards the final 20% year mark. Assignment no Mark Weight Total Ass % 50% 25 Ass % 50% x 20% of final = 14 Assume an examination mark of 55% 80% of the examination mark is 44 Final mark = (20% of the average assignment marks) + (80% examination mark) = = 58% The example demonstrates that your year mark can help you to pass the module. To pass the module you need a final mark of at least 50% and to qualify for a supplementary examination you will need a final mark of above 40%. 6.2 General assignment numbers Assignments are numbered consecutively per module, starting from Unique assignment numbers Each assignment has been allocated a unique number in order to identify it in the Unisa assessment plans. Please ensure you always indicate the correct unique number when submitting assignments Due dates for assignments You should preferably submit your assignments at Do not wait until the day just prior to the due date to submit your assignment. Technical problems with the computer servers of myunisa may prevent you from submitting your assignment at the last minute. Should you not be able to submit your assignments at myunisa and need to mail us your assignments in hard copy format, please ensure that your assignments reach the Unisa main campus by the due dates. Requests for extension of due dates for assignments will not be granted. These due dates have been set to allow you sufficient time for the completion of other assignments and your preparation for the examination. 7

8 Information about whether Unisa has received your assignment and the mark attained for an assignment can be obtained from First semester: Assignment number Due Dates Unique numbers MARCH APRIL Second semester: Assignment number Due Dates Unique numbers AUGUST SEPTEMBER Submission of assignments To submit an assignment via myunisa: Go to myunisa at Log in with your student number and password. Select the module. Click on assignments in the left-hand menu. Click on the assignment number you want to submit. Follow the instructions on the screen. Only if you do not have access to the Internet should you submit your assignment by means of a markreading sheet (for MCQ s) or hard paper copy (for essay type questions) and mail it to Unisa. If you are using a mark-reading sheet, remember to: 1. use an HB pencil 2. indicate your student number and the above-mentioned unique number on the mark-reading sheet 3. follow the instructions for completing mark-reading sheets. Incomplete mark-reading sheets will be returned to you unmarked 4. submit the assignment in good time. It must have reached the Unisa Main Campus by the date indicated in the assignments below. Otherwise it might not be in time to be marked by the Assignment Section. 8

9 FIN2602/ Assignments SEMESTER 1 ASSIGNMENTS Assignment 01 - Semester 1 Due date: 18 March 2016 Unique number Personal financial planning: 1 Financial independence means [1] great wealth. [2] you are dependent on the state for a pension. [3] you are dependent on family members to survive financially. [4] you are able to survive financially on your own investments after retirement. [5] you do not have to continue working after retirement. 2 Which of the following statements is/are correct? The secret of personal financial management and planning is to be aware of the many factors that may influence your at the present time or in the future. (e) personal financial situation positively personal financial situation negatively personal financial situation positively or negatively retirement positively investments positively [2] b only [3] c only [4] b and d [5] b and e 3 Which one of the following statements is correct? [1] Within the same financial planning cycle, people s priorities and preferences are exactly the same. [2] Within the same financial planning cycle, people s priorities and preferences will not change according to their current individual circumstances. [3] Our financial priorities stay the same as we move through the personal financial planning cycle. [4] Personal financial planning has to do with what the world s richest people have done. [5] Our financial priorities change as we move through the personal financial planning cycle. 4 Which one of the following statements is correct? Fewer than one out of ten people retire financially independent. Maximum profit is the long-term goal of personal financial management. The long-term goal of personal financial management is financial independence at retirement. [2] b only [3] a and b [4] a and c [5] a, b and c 9

10 The measurement and assessment of personal financial performance: 5 Which of the following principles are involved in drawing up a budget? Involvement of family members A proper administrative system Good communication A realistic budget [1] a and b [2] a, b and c [3] a, b and d [4] b and d [5] all of the above 6 Which of the following are advantages of a personal budget? A budget is based on assumptions. A budget is not the solution to all financial problems. A budget improves financial discipline. A budget reduces financial conflict. [2] a and b [3] a, b and c [4] b and d [5] c and d 7 Which of the following are limitations of a personal budget? You need a household record system in order to draw up your budget. A budget is the solution to all financial problems. The success of the budget depends on people. A budget is based on forecasts. [2] a and b [3] a, b and c [4] a, b and d [5] a, c and d The time value of money 8 You receive an annual amount of R5 000 from a trust for the next 10 years. Calculate the present value of your income if money is worth 8% per year. [1] R [2] R [3] R [4] R [5] R

11 FIN2602/101 9 Calculate the amount you have to invest at 10% compound interest to produce R after 3 years. [1] R [2] R [3] R [4] R [5] R Mr. Mofokeng has been granted a mortgage loan of R Money is worth 10% per annum, compounded monthly at the end of each month. Mr. Mofokeng s monthly instalment is R Calculate the period of the loan (approximated). [1] 20 years [2] 22 years [3] 23 years [4] 29 years [5] 30 years 11 An investor analyses a retail property and finds that it will yield a net income of R , R and R over the next three years respectively. At the end of this period, the property can be sold for R If the investor requires at least 10% on his/her investment, what is the maximum amount which he/she should pay for the property? (2 marks) [1] R [2] R [3] R [4] R [5] R Credit planning 12 The goals of the Credit Act (nr. 34 of 2005) are... to protect the consumers of credit against reckless lending practices by the providers of credit. to prevent over-indebtedness by the consumers of credit. to protect the payment history of consumers. to inform consumers about the cost of credit. [2] a and b [3] a, b and c [4] a, b, c and d [5] a, b and d 13 The Credit Act will help consumers to... obtain more credit. make informed borrowing decisions. escape the debt jail. prevent negative marketing practices by the suppliers of credit. [1] a and b [2] a and c [3] a, b and c [4] b, c and d [5] c and d 11

12 14 Which of the following statements is/are correct? A credit provider is reckless when the provider fails to do a credit check on the consumer. does not ensure that the consumer understand the agreement. grants too little credit. grants credit despite the fact that the credit assessment showed that the consumer. would be over-indebted. [2] a, b and c [3] b and c [4] a, b, c and d [5] a, b and d 15 Which of the following statements is/are correct? A credit consumer is the person to whom credit is not granted, under a mortgage agreement. the person to whom credit is granted, under a mortgage agreement. the lessee, under a lease. the person to whom goods and services are sold, under an installment agreement. [1] a and b [2] b only [3] a and c [4] b and d [5] b, c and d 16 Which of the following statements is/are correct? A consumer is over-indebted when the consumer will not be able to meet all financial commitments under all credit agreements to which the consumer is a party. the consumer will not be able to meet the financial commitments under certain credit agreements to which the consumer is a party. the consumer has to apply to a debt counsellor to be declared over-indebted. [2] b only [3] a and b [4] a and c [5] b and c 17 Which one of the following statements is correct? [1] The National Credit Regulator consists of a single person. [2] A person that sells goods and services to consumers and expects to be paid at a later date, is a credit provider only. [3] A person that sells services to consumers and expects to be paid at a later date, is a credit provider only. [4] A person that lends money to consumers and expects to be paid at a later date, is a credit provider only. [5] A person that sells goods and services or lends money to consumers and expects to be paid at a later date, is a credit provider only. 12

13 FIN2602/ Which one of the following statements is true? The National Consumer Tribunal... [1] listen to consumers complaints about credit providers. [2] order the release of a consumers personal information to other consumers. [3] order the release of a consumers personal information to employers. [4] listen to credit suppliers complaints. [5] listen to consumers complaints about the availability of credit. 19 Which one of the following statements is true? A credit bureau... [1] helps consumers to obtain credit. [2] accumulates information about credit providers. [3] supplies credit to banks. [4] accumulates information about the credit history of consumers. [5] handles queries on behalf of the National Credit Regulator. [20 marks] 13

14 Assignment 02 Semester 1 Due date 14 April 2016 Unique number Estate planning: 1 Which one of the following statements is correct? [1] A will presupposes comprehensive estate planning. [2] The power of assumption enables you to administer your own estate. [3] Assets with no capital growth are usually placed in a trust. [4] People mainly create a company to save on transfer duty. [5] A testamentary trust enables you after your death to pay estate duty, among other things, out of the proceeds of a life insurance policy. 2 The number of steps during administration depend on whether the estimated value of the estate is less than R the estimated value of the estate is greater than R the estate is solvent/insolvent. [2] b only [3] a and c [4] b and c [5] a, b and c 3 To implement the estate plan means to identify the assets of the estate. select the estate planning techniques. draw up the will, insurance and investment documents. [2] a and b [3] b only [4] b and c [5] c only 4 Which one of the following statements is correct? [1] A will presupposes an employer-employee relationship. [2] An option enables you to administer your own estate. [3] Assets with capital growth are usually placed in a trust. [4] People mainly create a close corporation to save on capital gains tax. [5] A testamentary trust is created during the lifetime of the founder. 5 Which one of the following statements is correct? [1] A will is the only way to solve liquidity problems in an estate. [2] A will is not the only way to solve liquidity problems in an estate. [3] A donation in a person s will is called a donation inter vivos. [4] A donation during a person s lifetime is called a donation mortis causa. [5] In a will the right to live in a house is called a fideicommissum. 14

15 FIN2602/101 6 Which one of the following statements is correct? Estate planning includes the following: [1] an investment in unit trusts. [2] an investment in a life insurance policy. [3] taking out short-term insurance. [4] drawing up a legal and valid will. [5] all of the above. 7 Which of the following statements is/are correct? Estate planning includes the investment in assets. the protection of assets. the transfer of assets. [2] b only [3] a and b [4] a, b and c [5] c only 8 Which of the following statements is/are correct regarding the legal requirements for setting up a trust? (e) The donation agreement must be contained in a written deed of trust. An obligation must arise to administer the assets on behalf of the donor. Property rights must be maintained by the donor. The trust assets must be transferred legally from the founder to the beneficiaries. An obligation must arise to administer the assets on behalf of the children. [2] a and b [3] a, b and c [4] b, c, d and e [5] d and e 9 Which of the following statements is/are correct? (e) a large number of life policies may increase your standard of living. take out a life policy as soon as you invest in financial assets. take out a life policy as soon as you invest in fixed assets. use a partnership to buy fixed assets with an expected high capital growth. people with large estates should not bequeath their life policies to other people. [2] a and b [3] b only [4] c and e [5] d and e 15

16 10 Which of the following statements is/are correct? (e) A life policy can be used to pay estate duty. A life policy cannot be ceded to a bank. A life policy can only be used after your death. A life policy cannot be used for business planning. A life policy can be used as part of a divorce settlement. [2] a and b [3] a and c [4] a, b, d and e [5] a and e [10 marks] 16

17 FIN2602/101 POSSIBLE EXAMINATION QUESTIONS AREAS AND TOPICS FOR EXAM QUESTIONS THE EXAM PAPER CONSISTS OF 35 MULTIPLE CHOICE QUESTIONS ONLY. THE FOLLOWING 20 DISCUSSION QUESTIONS WILL ENABLE YOU TO ANSWER THE 35 MULTIPLE CHOICE QUESTIONS Question 1 Discuss the different steps in the personal financial planning process. Question 2 Briefly discuss the household budget with reference to the following: role in the personal financial planning process the principles relevant to the drawing up of a domestic budget actions or corrective steps to follow if you cannot balance your income and expenditure Question 3 Discuss how you would handle a debt crisis. Question 4 Explain the goals and functioning of the Credit Act. Question 5 Discuss the different income tax planning pitfalls that threaten the individual. Question 6 Discuss how you would finance a business. Question 7 You are considering buying an existing business. Briefly discuss all the steps which you would take to assess the business s financial performance with a view to deciding whether or not to buy it. Question 8 Discuss how you would assess a franchise opportunity. Question 9 Briefly discuss the different steps in the estate planning process. Question 10 Discuss the different estate planning pitfalls that threaten the individual. Question 11 Discuss the different investment planning pitfalls that threaten the individual. Question 12 Briefly discuss the cost items involved in purchasing a dwelling. Question 13 Explain the following concepts regarding the purchase of a residence: an open mandate a sole mandate estate agent an option a right of first refusal a suspensive condition a resolutive condition convenience network 17

18 exposure network a mortgage (bond) matrimonial property system (ANC) Question 14 Discuss the different steps in the property investment process. Question 15 You are a South African who wants to invest offshore. Discuss the local homework you should do before you actually make the investment. Question 16 Discuss the various financial risks to which South African households are exposed as well as possible precautions that can be taken against these risks. Question 17 Differentiate between medical schemes and medical insurance. Question 18 Discuss retirement planning with specific reference to the following: primary objective retirement planning pitfalls (mistakes) methods of providing for retirement Question 19 Explain the functioning, advantages and disadvantages of the following: a fixed benefit pension fund a fixed contribution provident fund a retirement annuity a preservation fund unit trusts (collective investments) a money market fund Question 20 Identify and discuss the home work/research that should be done before you can emigrate. 18

19 FIN2602/ SEMESTER 2 ASSIGNMENTS Assignment 01 - Semester 2 Due date: 22 August 2016 Unique number: Personal financial planning 1 Financial independence means [1] great wealth. [2] you are dependent on the state for a pension. [3] you are dependent on family members to survive financially. [4] you are able to survive financially on your own investments after retirement. [5] you do not have to continue working after retirement. 2 Which of the following statements are correct? Personal financial management is the field of study that affects all people. Personal financial management is the field of study that affects investors and brokers mainly. Personal financial skills are probably the most important life skills one can possess. Persons with this knowledge and skills can also transfer it to their children. [1] a and b [2] a and c [3] a, b and d [4] a, c and d [5] d only 3 Which one of the following statements is correct? [1] Career planning does not form part of personal financial planning. [2] Estate planning does not form part of personal financial planning. [3] Income tax planning does not form part of personal financial planning. [4] Personal financial planning includes retirement planning. [5] Emigration planning does not form part of personal financial planning. 4 Which of the following statements are correct? Fewer than one out of ten people retire financially independent. Maximum profit is the long-term goal of personal financial management. The long-term goal of personal financial management is financial independence at retirement. [2] b only [3] a and b [4] a and c [5] a, b and c 19

20 5 Which one of the following statements is correct? [1] Personal financial planning does not include business planning. [2] People s financial priorities remain the same through the planning cycle. [3] Knowledge is not a prerequisite for personal financial planning. [4] People confuse investments with personal financial planning. [5] Emigration planning does not form part of personal financial planning. The measurement and assessment of personal financial performance 6 Which of the following principles are involved in drawing up a budget? Involvement of family members A proper administrative system Good communication A realistic budget [1] a and b [2] a, b and c [3] a, b and d [4] b and d [5] all of the above 7 Which of the following are limitations of a personal budget? A budget is based on assumptions. A budget is the solution to all financial problems. The success of the budget depends on people. A budget is based on forecasts. [2] a and b [3] a, b and c [4] a, b and d [5] a, c and d 8 Which of the following are advantages of a personal budget? A budget is based on assumptions. A budget is not the solution to all financial problems. A budget improves financial discipline. A budget reduces financial conflict. [2] a and b [3] a, b and c [4] b and d [5] c and d 20

21 FIN2602/101 9 Which of the following principles is/are involved in drawing up a budget? Involvement of an accountant Risk and return Monthly income and expenses A realistic budget [1] a and b [2] a and c [3] a, b and d [4] c and d [5] d only 10 Which of the following statements is/are correct? The personal financial budget is a plan that is expressed in financial terms. assists one in measuring and assessing the household s financial performance. is therefore a control mechanism. helps to achieve personal financial goals. [1] a and b [2] a and c [3] a, b, c and d [4] b and d [5] c and d 11 Which one of the following statements is correct? [1] Within the same financial planning cycle, people s priorities and preferences are exactly the same. [2] Within the same financial planning cycle, people s priorities and preferences will not change according to their current individual circumstances. [3] Our financial priorities stay the same as we move through the personal financial planning cycle. [4] Personal financial planning has to do with what the world s richest people have done. [5] Our financial priorities change as we move through the personal financial planning cycle. 12 Which of the following statements is/are correct? a budget is the solution to all financial problems. budgeted figures are based on forecasts. a budget indicates how and when the stated objectives can be achieved. forecasts refer to those periods in the future that must be budgeted for. [2] b only [3] b and c [4] b, c and d [5] d only 21

22 The time value of money 13 You purchase a dwelling for R and finance the purchase by way of a R mortgage bond. The mortgage bond interest rate is 15% per year and the bond period is 20 years. You wish to calculate the following: The monthly mortgage bond instalment [1] R [2] R [3] R [4] R [5] R The new mortgage bond instalment if interest rates rise to 16% per year. [1] R [2] R [3] R [4] R [5] R The new mortgage bond instalment should you have to extend the mortgage bond period to 30 years as a result of a cash flow problem. [1] R [2] R [3] R [4] R [5] R The amount of capital amortized by the 150 th instalment. [1] R [2] R [3] R [4] R [5] R The amount of interest amortized by the 150 th instalment. [1] R [2] R [3] R [4] R [5] R

23 FIN2602/ A newly married couple intends saving enough money over the next three years to be able to pay a 30% deposit on a house which now costs R Property prices are expected to rise by 9% per year over the next three years. How much should the couple save at the end of every month at 14% nominal interest to achieve their goal? (3 marks) [1] R601,03 [2] R652,71 [3] R706,04 [4] R729,47 [5] R962,03 [20 marks] 23

24 Assignment 02 - Semester 2 Due date: 12 September 2016 Unique number: Estate planning 1 Which one of the following statements is correct? [1] A testamentary trust enables you after your death to pay estate duty, among other things, out of the proceeds of a life insurance policy. [2] A will presupposes comprehensive estate planning. [3] Assets with no capital growth are usually placed in a trust. [4] People mainly create a company to save on transfer duty. [5] The power of assumption enables you to administer your own estate. 2 Which one of the following statements is correct? [1] Habitatio refers to the right to rent a certain property. [2] An interest in property may not include the income from a building. [3] Massing is a testamentary bequest to a person on condition that the bequest goes to another person after that person s death. [4] Usufruct may include the rent from a farm. [5] Habitatio takes place when two or more people draw up a joint partnership. 3 Which of the following statements is an example of an estate planning pitfall? (e) insufficient capital for transferring the estate. notminimising the transfer costs of the estate. having children who are unemployed. insufficient liquid/financial assets for transferring the estate. not protecting the assets of the estate. [2] a and b [3] a, b, c and d [4] b, c and d [5] b, d and e 4 Which one of the following statements is correct? [1] Estate planning presupposes a large estate. [2] A right of first refusal enables you to invest in shares. [3] Assets with no capital growth are usually placed in a will. [4] People mainly create a trust to save the cost of drawing up a will. [5] A trust inter vivos is created during the lifetime of the founder. 5 Which one of the following statements is correct? Strategies to reduce the value of your estate include [1] buying property from your heirs. [2] buying property in your own name. [3] donating R to your child. [4] having no investments in shares. [5] cancelling the payments of your short term insurance policy. 24

25 FIN2602/101 6 Which of the following statements is/are correct? (e) A life policy can be used to pay estate duty. A life policy cannot be ceded to a bank. A life policy can only be used after your death. A life policy cannot be used for business planning. A life policy can be used as part of a divorce settlement. Buying a residence: [2] a and b [3] a and c [4] a, b, d and e [5] a and e 7 The cost(s) payable by a natural person for a town house purchased (purchase price = R ) always includes the following cost items: [1] Transfer duty [2] Conveyancing fees [3] Estate agent s commission [4] Monthly bond instalment [5] [1] and [2] only 8 Which of the following statements is/are correct? (e) Estate agents levy a tax, called estate duty, on the sale of immovable property. Attorneys levy a tax, called occupational rent, on the sale of immovable property. Conveyancing costs are levied by the transfer attorney of the property. Occupational interest is payable by the buyer of the property. Occupational interest is normally calculated at the current repo interest rate on the full purchase price of the property. [2] a and b [3] c only [4] c and d [5] d and e 9 Which of the following statements is/are correct? (e) Bond registration costs are paid to the transfer attorney. Bond registration costs are paid to the attorney of the financial institution. The buyer of a house is normally responsible for paying the estate agent s commission. A decreasing term life insurance policy can be used to secure the contents of a house. A homeowner s insurance policy provides protection to the security of the mortgagee. [1] a and b [2] a and c [3] b only [4] c, d and e [5] e only 25

26 10 Which of the following statements are correct? Obtaining a bond is an example of a suspensive condition. When a suspensive condition is fulfilled a valid contract arises. When a resolutive condition is fulfilled a valid contract arises. If a factory is erected (as a resolutive condition) a contract lapses. [1] a and b [2] a, b and c [3] b and c [4] b and d [5] a, b and d [10 marks] 26

27 FIN2602/101 POSSIBLE EXAMINATION QUESTIONS AREAS AND TOPICS FOR EXAM QUESTIONS THE EXAM PAPER CONSISTS OF 35 MULTIPLE CHOICE QUESTIONS ONLY. THE FOLLOWING 20 DISCUSSION QUESTIONS WILL ENABLE YOU TO ANSWER THE 35 MULTIPLE CHOICE QUESTIONS Question 1 Discuss the different steps in the personal financial planning process. Question 2 Briefly discuss the household budget with reference to the following: role in the personal financial planning process the principles relevant to the drawing up of a domestic budget actions or corrective steps to follow if you cannot balance your income and expenditure Question 3 Discuss how you would handle a debt crisis. Question 4 Explain the goals and functioning of the Credit Act. Question 5 Discuss the different income tax planning pitfalls that threaten the individual. Question 6 Discuss how you would finance a business. Question 7 You are considering buying an existing business. Briefly discuss all the steps which you would take to assess the business s financial performance with a view to deciding whether or not to buy it. Question 8 Discuss how you would assess a franchise opportunity. Question 9 Briefly discuss the different steps in the estate planning process. Question 10 Discuss the different estate planning pitfalls that threaten the individual. Question 11 Discuss the different investment planning pitfalls that threaten the individual. Question 12 Briefly discuss the cost items involved in purchasing a dwelling. Question 13 Explain the following concepts regarding the purchase of a residence: an open mandate a sole mandate estate agent an option a right of first refusal a suspensive condition a resolutive condition convenience network 27

28 exposure network a mortgage (bond) matrimonial property system (ANC) Question 14 Discuss the different steps in the property investment process. Question 15 You are a South African who wants to invest offshore. Discuss the local homework you should do before you actually make the investment. Question 16 Discuss the various financial risks to which South African households are exposed as well as possible precautions that can be taken against these risks. Question 17 Differentiate between medical schemes and medical insurance. Question 18 Discuss retirement planning with specific reference to the following: primary objective retirement planning pitfalls (mistakes) methods of providing for retirement Question 19 Explain the functioning, advantages and disadvantages of the following: a fixed benefit pension fund a fixed contribution provident fund a retirement annuity a preservation fund unit trusts (collective investments) a money market fund Question 20 Identify and discuss the home work/research that should be done before you can emigrate. 28

29 FIN2602/101 7 EXAMINATION Examination admission will be granted to all students who submit Assignment 01 before the due date. Students who do not submit the assignment will NOT be allowed to write the examination. The provisional examination dates have been published at The examination for FIN2602 will be a 2 hour paper for 70 marks. The examination paper for FIN2602 will consist of 35 MULTIPLE CHOICE questions. What do I need to bring to the examination venue? Bring your identity document (ID), student card, an HB pencil, black pen, financial calculator, ruler, eraser, and pencil sharpener. No. Will it be an open-book examination? Could you give me an idea of the scope of the examination paper? The examination paper is based on THE POSSIBLE EXAMINATION QUESTIONS in tutorial letter 101. Sms s will provide more guidelines about the exam. I wish you a fascinating and satisfying journey through the learning material and trust that you will complete the module successfully. Kind regards Nico Swart 29