instructions listed on the page
FINA200 - Winter 2010, Section W PERSONAL FINANCE - FINA200 Fall 2018, Section OL Case 1: February 15, 2018 (due March 1, 2018) Covering Chapters 1 - 7 _______________________________________________________________________ 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: Parla8654923). -This is an individual assignment, to be completed by you alone. -There are 9 pages to this case including the cover page – please ensure that you have all 9 pages. -Case 1 consists of two sections. Answer: Section I: respond directly on the exam and highlight your response to the multiple choice. Section II: respond directly on the exam in the space provided or by highlighting the response. -You may submit your solution in English or French; acceptable submission formats include Word (.docx or.doc) or PDF. EXCEL is NOT accepted (outside research will likely be required) -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 questions. You may need other outside sources to respond. This Case is on 20 marks but is worth 10% of your grade. For marking purposes only: Multiple Choice Question 1 Question 2 Question 3 Question 4 Question 5 Total /10 /4 /2 /1 /1 /2 /20 Section I: 10 Multiple Choice Questions (1 mark each – total of 10 marks) Highlight your response. 1) Which are Federal Non-Refundable Tax Credits? I) Tuition II) Medical expenses III) Charitable donations IV) Net capital losses V) Registered Retirement Savings Plan (RRSP) VI) Tax-Free Savings Account (TFSA) a) I, II and III b) I, II and V c) II, III, IV and VI d) I and II e) V and VI 2) John is looking to retire in 10 years. He will invest $50,000 three years from today, and an additional $75,000 five years from today, all at a rate of 6%, compounded monthly. How much money will John have 10 years from now? a) $320,839 b) $190,731 c) $177,182 d) $300,169 e) $196,715 3) What type of question should be asked when looking at the component of a financial plan called “protecting your assets and income”? a) Should I pay off my higher-interest debt? b) How much money will I need in retirement? c) How much money can I save each month? d) How much risk can I tolerate when investing my savings? e) What amount of deductible should I consider? 4) An annuity due is a stream of equal payments that are received or paid at the beginning of the period over random periods of time. a) True b) False 5) Ava earned $150,000 in gross salary in 2017. In addition, she received a bonus of $25,000 for having delivered on a critical project. Ava wants to know how much of her bonus she will keep after having paid the taxes on it. See Table A for the marginal tax rates. a) $12,492.50 b) $12,507.50 c) $12,500.00 d) $25,000.00 e) $13,327.50 6) Marcela is 25 years old and works full-time for a large accounting firm. Upon being hired, she completed her Federal Form TD1 (2017 Personal Tax Credits Return form) properly but estimates that she will still owe a small balance of $200. Which of the following best summarizes her tax filing position? a) Marcela only owes $200; there is no penalty owing if she files late as it is under $1,000 in taxes owing. b) Marcela must file her tax return by April 1, 2018, otherwise if she files after this date, she will owe $210 (for the balance owing in taxes plus a late-filing penalty of 5%). c) Marcela has no penalties owing as her employer did not withhold sufficient taxes as she completed the TD1 form properly; her employer will receive the penalty and amount owing. d) Marcela must file her tax return by April 30, 2018, otherwise if she files one month late, she will owe $212 (for the balance owing in taxes, a late-filing penalty of 5% as well as 1% for the full month late). e) Marcela must file her tax return by April 15, 2018, otherwise if she files on April 16, she will owe $210 (for the balance owing in taxes plus a late-filing penalty of 5%). 7) In most cases, banks will provide a mortgage loan only if: a) the Gross Debt Service (GDS) is no more than 40% and the Total Debt Service (TDS) is no more than 32%. b) the Gross Debt Service (GDS) is greater than 32% and the Total Debt Service (TDS) is greater than 40%. c) the Gross Debt Service (GDS) is no more than 32% and the Total Debt Service (TDS) is no more than 40%. d) the down payment on a mortgage is 5% of the home’s appraised value. e) you provide them with a Net Worth statement as the banks are not interested in ratios such as the Gross Debt Service (GDS) and the Total Debt Service (TDS). 8) Alexa just sold 1,000 shares in Microsoft for $115/share on December 15, 2017. She had paid $85/share for them in 2016. She is wanting to know what she must report on her 2017 Federal personal income tax return as she has a net capital loss from a previous year of $2,000 from the sale of other shares. Microsoft shares trade on the New York Stock Exchange (NYSE) but all amounts in this example are in Canadian dollars. a) Alexa must report a taxable capital gain of $15,000 on her 2017 tax return as part of Total Income and can claim a deduction of $2,000 for the net capital loss. b) Alexa must report a capital gain of $15,000 on her 2017 tax return as part of Total Income and can claim a deduction of $2,000 for the net capital loss. c) Alexa must report a taxable capital gain of $30,000 on her 2017 tax return as part of Total Income and can claim a deduction of $2,000 for the net capital loss. d) Alexa does not need to report a taxable capital gain as the shares of Microsoft are foreign shares; she does not need to report foreign income as Canadian taxpayers are taxed on Canadian income, not world-wide income. e) Alexa must report a capital gain of $15,000 on her 2016 tax return as part of Total Income and can claim a deduction of $2,000 for the net capital loss. 9) Liquidity refers to your access to _______________________, including savings and credit, to cover_______________________. a) change in your pocket; long-term and unexpected expenses. b) investments; your long-term liabilities. c) overdraft protection; all banking charges. d) cash; short-term and unexpected expenses. e) None of the above. 10) Ali has saved $20,000 in his Tax-Free Savings Account (TFSA). He plans to add $450 at the end of each month to his TFSA over the next 3 years. At the rate of 5%, compounded monthly, what will be the balance in his investment account in 3 years? a) $43,444.56 b) $42,378.22 c) $37,439.00 d) $41,567.43 e) $40,668.44 Section II: Three (3) Mini-Cases (10 marks) Please write (or where required, highlight) your response in the template or space provided. Mini-Case A: Question 1: (4 marks - .5 marks each) We are currently February 2018, Jonathan has never contributed to a Tax-Free Saving’s Account (TFSA) as he knows little about them. Using Table B, help Jonathan with his questions: a) Jonathan is 19, what is the maximum amount that he can contribute to his TFSA in 2018 (including carry forward amounts): $__________________________________ . (.5 mark) b) Jonathan is now convinced that TFSA’s are great. He has therefore decided to open multiple TFSA accounts, one at the Bank of Montreal, one at the Royal Bank of Canada and another one with his new investment broker at ABC Investors Inc., what is the maximum amount that he can contribute to his TFSA’s $____________________ in 2018. (.5 mark) c) If Jonathan contributes the maximum to his TFSA in February 2018, and then subsequently withdraws it a few months later, as of what date can he put the money back in without triggering a penalty. He can re-contribute: a) immediately or b) as of January 1st of the following year (.5 mark) Jonathan’s mother, Maria is 50 years old and he thinks that she might also be interested in contributing to her TFSA, as she has never contributed either. d) What is the maximum amount that she can contribute to her TFSA in 2018 (including carry forward amounts): $_________________________________________. (.5 mark) e) Assume that Maria made the maximum contribution but also overcontributed on March 31, 2018 by $500, how much will this overcontribution error cost in terms of a penalty if she only realizes her error six months later, September 30, 2018? a) $70 or b) $60 or c) $50 or d) $40 e) $30 (.5 mark) Jonathan’s older brother, Sam recently contributed $5,000 for the first time to his TFSA in January 2018. With the recent stock market frenzy, Sam’s TFSA rose to $17,200 in one month! With this incredible gain, Sam is looking to cash-in his TFSA and use the money to buy a used car. f) In 2018, the withdrawal of $17,200 would be: a) taxable or b) not taxable (.5 mark) Jonathan’s little brother, Malcolm is now interested in TFSA’s after hearing about Sam’s investment return. Malcolm is 16 years old and has saved his birthday money over the years. The last time he counted, he had $2,300. He is wondering if he is eligible to contribute to a TFSA. g) To be eligible in making TFSA contributions, Malcolm must be_______________________ and _________________________________________________. (1 mark - .5 mark each) Mini-Case B: Question 2: (2 marks – .5 marks each) Anderson and Mary are excited to buy their first home which is on the market for $200,000. They have been putting money away each year into their Registered Retirement Savings Plan’s (RRSP’s) as they wish to take advantage of the Home Buyer’s Plan (HBP). To date, Anderson has made a total of $18,000 in contributions to his RRSP while Mary has made $23,000 in total to hers. Their RRSP’s have grown over the years and