Hello, dear friend, you can consult us at any time if you have any questions, add WeChat: daixieit

ECOM079 Applied Wealth Management

Section A

Question 1 : Discuss the role of situational profiling in understanding an individual investor’s attitude toward risk.

[25 marks]

Question 2 : Discuss liquidity”, “time horizon”, and “unique circumstances” as the major constraint categories included in an individual investor’s investment policy statement.

[25 marks]

Question 3 : Discuss, compare and contrast accrual,” “capital gains” and “wealth” taxes.

[25 marks]

Question 4 : Discuss the characteristics of blended” taxation with the help of an example.

[25 marks]

Question 5 : Read the case study below and answer the following questions:

Andrew Ringer is the founder and majority owner of Ringerine. His daughter Anna estimates that her    revised annual living expenses, including a new studio and apartment, will average, excluding her son’s educational costs, €132,500. If necessary, she could combine her apartment and studio to reduce         spending by €32,500.  She does not want her financial security to be dependent on further gifting from  her parents and is pleased that, after the sale of Ringerine, she will be able to meet her new living         expenses with proceeds from art sales (€50,000) and the expected total return of the proposed              investment portfolio (€82,500). Because of the uncertainty of art sales, Anna plans to establish an         emergency reserve equal to one year’s living expenses. Her after-tax proceeds from the sale of             Ringerine are expected to be €1,200,000 x (1 − 0.15) = €1,020,000. She also holds €75,000 in              balanced mutual funds and €25,000 in a money market fund. Anna intends to reevaluate her policy       statement and asset allocation guidelines every three years.

a. Discuss Anna’s liquidity requirements.

[5 marks]

b. Determine Anna’s return requirement and evaluate whether her portfolio can be expected to satisfy  that requirement if inflation averages 3 percent annually and she reduces her annual living expenses to €100,000 by combining her apartment and studio.

[5 marks]

c. Explain why an analysis of Anna’s investment policy statement might become necessary before the  next three-year review. Simon’ (Andrew’s son) increasingly irresponsible lifestyle has become a burden to his parents. Simon was recently arrested for reckless driving— he crashed his car into a restaurant,   causing considerable damage and injuring a patron. As a result of Simon’ behavior, Andrew has placed him on probationary leave of absence from Ringerine but will allow him to retain his annual salary of     €100,000. The restaurant patron is suing Simon for €700,000 in damages, and the restaurant owner     estimates that it will take 500,000 to repair damages to his building. Simon’ insurance will cover costs to a maximum of only €200,000.

[5 marks]

d. Assess the impact of these events on Simon’ liquidity and his personal financial statement. What course of action should he pursue?

[5 marks]

e. Assess Simon’ probable future ability to assume risk, based on information about his background and current living situation.

[5 marks]


Question 6 : Read the case study below and answer the following questions:

Andrew and Margarita Keller, are reviewing their financial plan. The Kellers, both 50 years old, have  one daughter, 18 years old. With their combined after-tax salaries totaling £100,000 a year, they are  able to meet their living expenses and save £25,000 after taxes annually. They expect little change in either their incomes or expenses on an inflation-adjusted basis other than the addition of their            daughter’s college expenses. Their only long-term financial goal is to provide for themselves and for  their daughter’s education. The Kellers both wish to retire in 10 years.

Their daughter, a talented musician, is now entering an exclusive five-year college program. This     program requires a £50,000 contribution, payable now, to the college’s endowment fund. Thereafter, her tuition and living expenses, to be paid entirely by the Kellers, are estimated at £40,000 annually.

The Keller’s personal investments total £600,000, and they plan to continue to manage the portfolio   themselves. They prefer “conservative growth investments with minimal volatility.” One-third of their   portfolio is in the stock of Margarita’s employer, a publicly traded technology company with a highly   uncertain future. The shares have a very low-cost basis for tax purposes. The Kellers, currently taxed at 30 percent on income and 20 percent on net realized capital gains, have accumulated losses from past unsuccessful investments that can be used to fully offset £100,000 of future realized gains.

In 10 years, Andrew will receive a distribution from a family trust. His portion is now £1.2 million and is  expected to grow prior to distribution. Andrew receives no income from the trust and has no influence   over, or responsibility for, its management. The Kellers know that these funds will change their financial situation materially but have excluded the trust from their current financial planning.

Construct the objectives and constraints portion of an investment policy statement for the Kellers, addressing each of the following:

i.  Return objective.

ii.  Risk tolerance.

iii.  Time horizon.

iv.  Liquidity requirements.

v.  Tax concerns.

[25 marks]