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PERSONAL FINANCE - FINA200 Winter 2020, Section EC Case 2: March 30, 2020 (due April 6, 2020 before 11:59pm) Covering Chapters 8-10, 13-15 _______________________________________________________________________ Student Name: Student ID: _______________________________________________________________________ PLEASE NOTE INSTRUCTIONS BELOW -Write your name and student ID above. -Save the file to upload as: last name plus student number (example: Parla855555) – note: the file name will automatically change to a numbered file once uploaded, this is normal. -This is an individual assignment, to be completed by you alone. -There are 10 pages to this case including the cover page – please ensure that you have all 9 pages. -Case 2 consists of two sections. Answer: Section I: respond directly on the Case and highlight your response to the multiple-choice questions. Section II: respond directly on the Case in the space provided for each MiniCase question. -You may submit your solution in English or French; acceptable submission formats include Word (.docx or.doc) or PDF. EXCEL is NOT accepted. -All responses with calculations are to be to two decimal places. -Tables can be found at the end of the Case to help respond to tax and Time Value of Money (TVM) questions. Outside research/sources will be required. This Case is on 25 marks; it is worth 25% of your grade. For marking purposes only: Multiple Choice /10

Mini-Case A /8

Mini-Case B /2

Mini-Case C /2

Mini-Case D /3

Total /25

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Section I: Ten (10) Multiple-Choice Questions (10 marks - 1 mark each) Highlight and underline your response. 1) Pensioners must start receiving their Old Age Security (OAS) pension benefits at age 60. a) True b) False 2) Josh and Erica are signing the real estate papers tomorrow on the purchase of their first home. They both have Registered Retirement Saving Plans (RRSPs) and are looking to use the Home Buyer’s Plan (HBP) to make their down payment. As of today, March 23, 2020, the market value of Josh’s RRSP is at $24,455 and Erica’s is at $35,798, what is the maximum amount they can currently withdraw from their respective RRSPs through the HBP for the total down payment on a house that was just listed for sale? (see Table E) a) $59,455 b) $57,455 c) $70,000 d) $60,253 e) $50,000 3) Which statement is incorrect? a) Tax-Free Savings Account (TFSA) contributions do not give a tax deduction. b) Registered Retirement Savings Plan (RRSP) and Tax-Free Savings Accounts (TFSA) contribution limits accumulate if contributions are not made. c) The last day you can make contributions to your Registered Retirement Savings Plan (RRSP) is December 31st in the year you turn 71 years old. d) Registered Retirement Savings Plan (RRSP) contributions start at age 18. e) The Home Buyers' Plan (HBP) allows you to withdraw money, (to a certain limit) from your RRSP to help finance the purchase of your first home. 4) You refuse to get in the car with Catherine as she texts constantly and has already received two tickets for texting while driving. She also received a criminal conviction for Driving Under the Influence (DUI). She thinks she is unlucky at the wheel when in fact she is a careless and thoughtless driver. Her current car insurer has refused to renew her car insurance and other car insurance companies have turned her down. Since she is now faced with the inability to qualify for a standard policy due to the label of being a high-risk driver, she must now turn to what’s called the auto insurer of last resort: _____________________________________. a) Criminal Code Insurance b) Insurance Endorsements c) Comprehensive Coverage d) Facility Association e) Third Party Liability Coverage Page 3 of 13

5) Which statement is correct regarding homeowner’s insurance? a) Replacement cost policy pays the homeowner the cost of replacing the damaged property with an item of a similar brand and quality. b) Homeowner’s policy specifies a deductible that the homeowner is responsible for paying before any insurance coverage is provided by the insurer. c) Homeowner’s insurance provides insurance in the event of property damage, theft, or personal and third-party liability relating to home ownership. d) The mortgage lender typically requires that the homeowner’s insurance policy covers at least the mortgage. e) All the above. 6) On November 1, 2019, Mateo opened an account and deposited $20,000. He invested this money in 1,000 shares in Crazy Growth mutual fund at $20/share. As of today, March 23, 2020, Mateo’s only investment grew to $37.00/share! Despite the great returns, and even with the fund being a back-end loaded fund, Mateo believes that holding all his money in this one risky mutual fund is not worth the sleepless nights. He has therefore decided to sell half of his holdings. Calculate the amount that he will receive from the sale by selling half today. Do not take taxes into consideration. Note: Use the Declining Redemption Schedule below to determine the back-end load fee that Mateo will have to pay (the amount of the fee is based on the value of the fund when it is redeemed (sold)). Mateo’s broker also charges a 2% commission on the sale after the Deferred Sales Charge is applied.

a) b) c) d) e)

$34,084 $20,680 $17,042 $17,224 $37,000

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7) Sandra invested $10,000 in a Tax-Free Savings Account (TFSA) last year and it has a value of $12,000 today. She also invested $10,000 in a Registered Retirement Savings Account (RRSP) last year and it has a value of $15,000 today. With the market uncertainty today, Sandra decides to withdraw the entire amounts from both accounts. On what amounts will Sandra need to pay tax on? a) Only on the initial $20,000 invested in each account b) On the total amount withdrawn (i.e $27,000) which includes the growth from each account c) On the $5,000 growth in the Registered Retirement Savings Account d) On the $15,000 withdrawn from the Registered Retirement Savings Account e) There is no tax to be paid 8) Leslie has invested in a diversified portfolio. His bonds will pay ____________, his Canadian common stocks will pay __________________, his foreign stocks will pay _________________, his real estate holdings will earn ___________________ upon the sale, and his preferred shares will pay __________________. a) interest, dividends, dividends, capital gains, dividends b) dividends, interest, dividends, capital gains, interest c) interest, dividends, dividends, capital gains, interest d) interest, interest, capital gains, capital gains, dividends e) dividends, dividends, dividends, interest, capital gains 9) In March 2019, Denise purchased 2,000 shares at $24.50/share in the company called Vaccine Inc. During this one-year period, she received $2.35/share in dividends. Despite the great returns, Denise decided to sell her shares today (March 23, 2020) when they hit $34/share as she needed money for tuition. What was Denise’s investment return during the one year that she held the shares? a) 48.37% b) 27.64% c) 36.45% d) 41.11% e) 38.20% 10) If you die without a Will the court will always appoint a family member to distribute your estate according to the laws of your province. a) True b) False

Section I completed, continue to Section II.

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Section II: Four (4) Mini-Cases (14 marks) Please type in (or highlight and underline, where required) your response in the template or space provided.

Mini-Case 1 (8 marks – 1 mark each) – Dany Dany needs help with some personal finance concepts and has turned to you for help. Insert the correct word from the choice of words at the end of this Mini-Case 1 to complete the sentence (note: not all words will be used): (8 marks -1 mark each) 

Pooled investments is an investment fund that pools together money from many investors; it provides for diversification, _______________________________________, and marketability.



When applying for life insurance, the information you provide about your medical history and lifestyle is used to determine your eligibility for coverage and your ______________________.



______________________________________ insures against costs of damage to your car resulting from an accident in which the driver of your car is at fault.



A ___________________________ is a gift that results from the instructions provided in a Will.



A person specified in a Will to receive part (or all) of an estate is called a ___________________________________. For life insurance proceeds, this person receives the insurance payment directly upon the death of the insured as it does not form part of the estate.



The ______________________________________ is the dollar value of the Estate assets that will be distributed to the surviving spouse before assets are distributed among all potential beneficiaries.

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The ______________________________________ is written solely in the handwriting of the testator and it does not require any witnesses.



Sarah is leaving for vacation and will be travelling around the world for six months. She has decided to leave her brother, Aaron in charge of her affairs to pay her bills and take care of her home while she is away. Sarah should have a notary prepare a Page 6 of 13

______________________________________ to allow Aaron to make specific decisions on her behalf.

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Exchange-Traded Funds (ETF) Beneficiary Closed mortgage Locked-In Retirement Account (LIRA) Preferential share Collision insurance Average tax rate Mutual Fund Annuity Due Current asset Term insurance Budgeting Credit management English Form Will Overdraf Lifelong learning plan (LLP) Amortization Reverse mortgage

High ratio mortgage Diversification Liquid asset Defined Contribution Pension Plan (DCPP) Opportunity costing Old Age Security (OAS) Registered Retirement Savings Account (RRSP) Return on Investment (ROI) Notarial Will Bequest Marginal tax rate Money management Stop payment Home Equity Line of Credit Credit cards Net Asst Value (NAV) Economies of scale Segregated funds

Convertible mortgage Enduring Power of Attorney Asset Defined Benefit Pension Plan (DBPP) Annuity Personal Balance Sheet Tax-Free Savings Account (TFSA) Conventional mortgage Mortgage Limited Power of Attorney Whole life insurance Disability insurance Holograph Will Premium Consumer Price Index (CPI) Prime rate Compound Open mortgage

Mini-Case 2 (2 marks) – Marie Every year Marie is concerned about having to repay the Old Age Security (OAS) pension that she receives. This is very stressful as she is on a very limited budget. She knows that if her income is over a certain amount, that she has to repay a large lump sum back through her tax return. In 2020, the OAS clawback or repayment calculation is based on the difference between Marie’s net income and the threshold amount for the year. If her income is over the threshold amount, then she must repay 15% of that amount. Marie’s monthly OAS pension is $613.54 for 2020 and her net income is $105,000.

a) Determine if Marie will have to repay her OAS and if so, calculate the amount that Marie will get to keep. (2 marks) Marie’s calculation: (2 marks)

Mini-Case C: (2 marks) - Lizzie Assume Lizzie purchased 1,000 shares of Bubblegum Inc. for a total of $5,300. She later decides to sell 700 shares once it has risen to $9.00. Calculate her capital gain and her taxable capital gain. Page 8 of 13

Calculation of the capital gain: (1 mark)

Calculation of the taxable capital gain: (1 mark)

Mini-Case D: (3 marks - .25 marks each) - Jenn Jenn is interested in the mutual fund RBC U.S.Equity Fund – Series A. She has a few questions for you before she buys this investment.  Go to the Assessments tab for the Fund Facts RBC U.S. Equity Fund – Series A (February 27, 2020) to help you respond to the following questions. Note that February 27, 2020 is the latest issue of Fund Facts for this mutual fund as Fund Facts are only filed annually or updated in the event of a material change that affects the content of the Fund Facts (e.g., a change in investment objectives, an increase in the management fee).  You will also need to search the internet for some of the responses. Go to your browser and enter RBC U.S. Equity Fund – Series A for daily market data (it is also known as CDN fund code RBF 263). a) b) c) d) e) f) g)

h) i) j) k)

What is the Management Expense Ratio (MER) for this fund? (.25 mark) How long has this fund been trading (i.e. date series started)? (.25 mark) What is the minimum amount needed to get into this fund? (.25 mark) If I wanted to invest more in this fund, how much would I need to invest? (.25 mark) What type of fee is charged: No-load, Front-end load or a Back-end load? (.25 mark) What is the definition of Net Asset Value (NAV)? (.25 mark) What is the Net Asset Value (NAV) to buy into this fund in CDN$? (Hint: search internet for the daily value, it is under RBC U.S. Equity Fund – Series A RBF 263 – note that RBF 263 is the CDN$ fund code – be careful as this fund can be purchased in CDN$ or US$).(.25 mark) If you had $1,000 CDN$ to invest in this fund, how many mutual fund units could you purchase based on your response in g)? (.25 mark) What is the risk rating assigned to this fund? (.25 mark) What type of investor is this investment for? (.25 mark) What is the Investment Mix of this fund – name top 5 as of December 31, 2019? (.25 mark) 1. 2. 3. 4. 5.

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l) Name the top 5 investment holdings in this fund as of December 31, 2019? (.25 mark) 1. 2. 3. 4. 5. The End

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TABLE A 2019 Combined Federal and Quebec Personal Income Tax Brackets and Tax Rates 2019 Taxable Income

2019 Tax Rates

2019 Taxable Income

2019 Tax Rates

first $43,790

27.53%

over $95,259 up to $106,555

45.71%

over $43,790 up to $47,630

32.53%

over $106,555 up to $147,667

47.46%

over $47,630 up to $87,575

37.12%

over $147,667 up to $210,371

49.97%

over $87,575 up to $95,259

41.12%

over $210,371

53.31%

TABLE B 2019 Federal Basic Personal Amount and Quebec Basic Personal Amount 2019 Federal Basic Personal Amount

2019 Quebec Basic Personal Amount

$12,069

$15,269

Tax rate 15%

Tax rate 15% TABLE C

Tax-Free Savings Account (TFSA): Annual Limits Years

Annual Limit

Years

Annual Limit

Year started 2009 - 2012

$5,000/year

2016 - 2018

$5,500/year

2013 - 2014

$5,500/year

2019

$6,000/year

2015

$10,000/year

2020

$6,000/year

TABLE D Registered Retirement Savings Plan (RRSP): Annual Limits Year

Contribution limit

2015

$24,930

2016

$25,370

2017

$26,010

2018

$26,230

2019

$26,500

2020

$27,230

TABLE E Page 11 of 13

Home Buyer ’s Plan (HBP) Withdrawals made afer March 19, 2019 Withdrawals made prior to March 19, 2019  

Withdraw up to $35,000 per borrower and up to $70,000 per couple. 15 years to pay back the amount withdrawn



Withdraw up to $25,000 per borrower and up to $50,000 per couple.



15 years to pay back the amount withdrawn

TABLE F Time Value of Money Formulas Simple Interest

Future (FV) of a single dollar amount

Present Value of a single dollar amount

Future Value of an annuity

Present Value of an annuity

Interest Rate Conversion

Time Value: FV = Maturity value or Future value PV = Principal or Present value PMT = Periodic annuity payments n = Number of compounding periods per year Page 12 of 13

i = Annual interest rate t = Time (in years) EY = Effective yield Simple interest: I = Interest earned P = Principal or Present Value r = annual interest rate t = time (in years)

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