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BEE1040

PERSONAL FINANCE

2022

Question 1   [50 MARKS in total]

a)  Explain how risk is an important driver to ensure good financial planning and budgeting. Use examples from various topics to illustrate how we can reduce financial risk throughout our life cycle. [20 MARKS]

b)  What are the differences between a secured loan and an unsecured loan? Are these differences consistent with economic theory? How does economic theory explain the observation that banks will offer loans at lower interest rates to        customers who have had many previous loans? [20 MARKS]

c)  Discuss the factors that influence bond prices. [10 MARKS]

 

Question 2   [50 MARKS in total]

a)  Does the UK state pension provide adequate financial support in retirement? Describe other pension types that employees might want to contribute to and explain their advantages and disadvantages. [20 MARKS]

b)  Explain how insurance pools risk across a population and discuss how insurers    calculate the premium. Insurance companies deal with asymmetric information     problems. Explain how adverse selection could increase the risk for the insurance company. Discuss strategies of how insurance companies can overcome moral    hazard issues. [20 MARKS]

c)  Explain and illustrate the difference between APR and AER. [10 MARKS]


Question 3   [50 MARKS in total]

a)  Describe the main purpose of taxation and the reasons why a government may choose not to collect taxes in some situations (i.e. tax expenditures). Use         examples from the UK taxation system to illustrate your points. [20 MARKS]

b)  Describe how the social and economic context can influence our personal   financial choices and decisions. Why is it important to be aware of the wider context we operate in? [20 MARKS]

c)  Explain what the beta (F) of a stock is and discuss its implications. [10 MARKS]

 

Question 4   [50 MARKS in total]

a)  What are the implications for an individual when interest rates (set in the UK by   the Bank of England) are increasing? Discuss the pros and cons of this scenario in relation to savings on a savings account, unsecured and secured debt,            investments, housing, and expenditure. Illustrate your answer with examples. [20 MARKS]

b)  “Compound interest is the cornerstone of personal finance” . Critically discuss this statement with examples. What other concepts are crucial for successful financial planning? [20 MARKS]

c)  Explain the investment concept of ‘Hedging’ . [10 MARKS]